Stocks rose on Tuesday, the first trading day of 2017, but closed off their session highs as oil prices gave back initial gains.
"When oil started to slip and the dollar peaked, that's when you saw stocks fall off a bit," said Robert Pavlik, chief market strategist at Boston Private Wealth. "I think, near term, people are expecting the market to give something back." "The fact remains that the market is not cheap. We're at really high valuations."
The S&P 500 closed about 0.8 percent higher, with telecommunications and health care leading advancers. The Nasdaq composite also advanced around 0.8 percent. The Dow Jones industrial average gained about 120 points, with Walt Disney and Goldman Sachs contributing the most gains.
Crude prices hit 18-month highs amid hopes that a deal struck between OPEC and non-OPEC countries to cut production will reduce excess supply. At session highs, U.S. crude prices had gained more than 2 percent. However, they settled 2.6 percent lower at $52.33 per barrel as concerns that Libya will increase production dampened investor sentiment.
"That's a reminder that there have been questions regarding [production-cut] compliance," said Quincy Krosby, market strategist at Prudential Financial. "Nobody is expecting full compliance. it's a matter of how many countries are out of compliance."
US crude intradaySource: FactSet
The three major stock indexes traded around 1 percent higher earlier on Tuesday, with the Dow having risen 175.93 points at session highs. "The real excitement earlier this morning came on the back of global markets rallying and [strong] PMIs," said Art Hogan, chief market strategist at Wunderlich Securities, adding that strong oil prices were also boosting equities.
He also said "you really have to juxtapose the strong gains we've had [in stocks] against the strong dollar. I think that's starting to seep into the market here." The U.S. dollar rose more than 1 percent against a basket of currencies, with the euro trading near $1.04 and the yen around 117.7.
Chinese stocks closed higher on the back of strong domestic data and of crude's spike, with the Shanghai composite rising 1.04 percent. China's Caixin Manufacturing Purchasing Managers' index (PMI) rose to 51.9, compared with 50.9 in November and beating forecasts for 50.7, on the back of increased demand.
"The first couple of days of the year set the direction for the market. I don't see anything interfering here. I think enthusiasm is still there," said Peter Cardillo, chief market economist at First Standard Financial.
European equities also rose, with the Stoxx 600 Europe index advancing 0.7 percent.