Stronger earnings at Citigroup, the best retail sales gain in 18 months and the cooing of dovish European central bankers combined to turn the tide for stocks, even as worries about Ukraine hang over markets.
Stocks jumped out of the gate Monday morning but pulled back from the highs that initially sent the Dow up triple digits. Like a seesaw, the yield on the 10-year then moved higher, and stocks resumed their climb in late morning trading. The best performers were the materials and industrial sectors, beneficiaries of global growth, followed by financials and consumer discretionary, which includes retail stocks.
But analysts were skeptical that the rally marks an end to the selloff, even with a rebound above 4,000 in the Nasdaq and strong gains in the momentum names like Facebook, Twitter and Amazon.com. The iShares Nasdaq Biotech ETF, IBB, a closely watched monitor of momentum was higher in early trading but traded on both sides of its 200-day moving average of 219, before ending the day slightly lower.
The S&P 500 closed near its high of the day at 1830, a gain of 0.8 percent or 14 points. Its losses in the recent sell off totaled 4.3 percent, as of Friday, from its all-time high reached on April 4.
"Citi lit the fuse," said Adrian Miller, head of fixed income strategy at GMP Securities. Stock futures were flattish to lower ahead of the Citigroup first-quarter earnings release. Citigroup profit rose 3.5 percent over last year, and its surprise earnings beat was a shocker after JPMorgan missed forecasts Friday.
Read MoreCitigroup posts earnings beat
"I wouldn't be surprised if it (the selloff) still had room to go. Luckily we got a nice retail sales number," said Bill Stone, chief investment strategist at PNC Wealth Management. "Other than that, when I look through the week, we get earnings that could provide more fundamental grist which I think is the better thing."
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Stone said data and earnings could distract investors from Ukraine, which will be in the background until it is resolved one way or another. The situation in Ukraine intensified over the weekend as police clashed with pro-Russian militants. On Monday, the militants appeared to ignore a deadline set by the Ukrainian government to vacate occupied buildings. The United Nations Security Council convened to discuss the crisis Sunday night.
"While earnings are beating the lowered expectations, they're certainly not going to be robust," Stone said. "It's hard in that sense to feel like you're going to get a whole lot of momentum in a short period. ... Setting all that aside, we're still positive. We feel the economy started picking up some momentum in the second quarter so earnings should pick up and at the end of the day, it's a matter of when does the market look forward. How much is it willing to look forward and look past the headline risk?"
Comments from European Central Bank President Mario Draghi sent the euro lower, which in turn contained selling in European equities and held U.S. futures near the flat line ahead of the opening bell. Draghi said a further appreciation of the euro would trigger more monetary stimulus, and while traders have been expecting a new round of easing from the ECB, Draghi's words were the most strident yet in terms of promising stimulus.
Monday's rally follows an ugly week for stocks, and investors have been questioning whether the economy will grow enough to justify the market's valuation, especially the growth names.
Retail sales jumped 1.1 percent, compared with the 0.8 percent expected by economists. Retail sales account for a third of consumer spending, and the gain was the biggest since September 2012 in nearly all categories.
Barclays said tracking first-quarter GDP increased 0.1 percent to 2.1 percent as a result of the retail sales number. But it later pared back GDP by the same amount when business inventories data were released.
"What that (retail number) does is put an exclamation point on the fact that the (weakness in the) first quarter was weather-related," said Art Hogan, chief market strategist at Wunderlich Securities.
Miller said data have to strengthen for the market to move ahead. "It's got to be that things are picking up. It's the modest versus the quickening. If we get quickening (of the economy), we're going to get stocks back to record highs. If the theme remains with just a modest progression, you can't support stocks at record highs, and that was the theme last week when stocks were selling off," he said.
Art Cashin, director of floor operations at UBS, said the rebound in stocks could be temporary. "Interesting, you watch each tick in the 10-year," he said. "They're using that as a monitor for a flight to safety." The 10-year yield was at 2.65 percent, after trading at 2.61 late Friday and when stocks came off their highs in early trading, the 10-year yield temporarily moved lower.
Analysts had been expecting rocky trading this week, in part because of the Good Friday holiday, which makes for just four trading days and also because trading desks will be lightly staffed due to Easter and Passover. They also had expected the selloff to continue until the shakeout in momentum names ended.
The Global X Social Media Index ETF, another momentum measure, was nearly 2 percent higher Monday.