The S&P 500 regained its 200-day moving average at 1907 and surged higher to close up 37 at 1941. At its low point, the S&P was down about 9.5 percent on an intraday basis from its high, and it is now up 5 percent for the year. The Nasdaq closed up 103 points at 4419, in its first triple digit move since Nov., 2011. The Dow rose for a third day, gaining 1.3 percent, to 16,614.
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U.S. earnings season is in full swing, and is viewed as a positive influence even though there have been some misses among high profile blue chips, such as Coca-Cola and McDonald's. The 106 S&P companies that reported as of Tuesday morning posted an average gain in profits of 15.6 percent, and 67 percent were better-than-expected, according to Thomson Reuters.
Considering both the results of companies that reported and estimates for those that have not, Thomson Reuters said profit growth now looks to be 7 percent for the third quarter, better than the roughly 6.4 percent expected at the start of the month.
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"Everyone is willing to look past Coca-Cola and McDonald's and IBM. They don't get it. The millennials are changing tastes," said Jack Ablin, CIO of BMO Capital Markets.
Dovish Fed comments, including from St. Louis Fed President James Bullard last week, have boosted market confidence that the Fed will not act quickly to return to normal.
"l see no reason interest rates are going to go up any time soon," said Massocca. The next big event for the market is the Fed's meeting next week, where it is expected to announce the final purchases under quantitative easing. Though Bullard cast doubt on the meeting by saying the Fed could extend the program if it saw need. "I see no reason to think the Fed is going to do anything," Massocca said.
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Paul Hickey, co-founder of Bespoke, said he expects the market to trade more positively, but he doesn't expect all smooth sailing.
"Our view is that this was more of a short term thing…The U.S. economy continues to be positive and outperforming practically every other economy out there."
Hickey said he expects the market to close out the year at higher levels. "When you see these kinds of pick up in volatility, they don't just go right away. It's one of those things where I would expect to see volatility in the market going forward," said Hickey. "We're not just going to keep going up forever. Today investors were encouraged by news on future easing out of Europe. We've had those false alarms before."
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Traders will be watching inflation data Wednesday, particularly those in the gold market where the metal has risen even with no signs of inflation in sight. Gold is viewed as a hedge against inflation.
Win Thin, senior currency strategist at Brown Brothers Harriman said gold's move is puzzling. "I'm not sure why it's still up here. We're seeing deflation," said Thin, adding the dollar usually moves in an opposite direction. Gold was higher after trading above the key $1250 level. "Commodities in general are firmer. We saw the selloff earlier in the month."
Economists expect the Consumer Price Index to be flat, but up 0.1 percent when excluding food and energy. Gasoline is a wild card for the number, and the drop in gasoline prices could shave 0.3 percent from the number, according to Deutsche Bank chief U.S. economist Joseph LaVorgna.