S&P 500 rises for first time in 3 sessions, but worries over economy dampen Street sentiment

Stocks shake off bond market warning signs — Watch five experts weigh in on what's next
Stocks shake off bond market warning signs — Watch five experts weigh in on what's next

Stocks rose on Tuesday, but sentiment on Wall Street was dampened by lingering fears that the economy is slowing down.

The Dow Jones Industrial Average closed 140.90 points higher at 25,657.73. The 30-stock index rose as much as 279.46 points earlier in the day. The closed up 0.7 percent at 2,818.46 — notching its first gain in three sessions — after trading 1.1 percent higher at its high of the day. The Nasdaq Composite gained 0.7 percent to close at 7,691.52.

Bank shares outperformed as the SPDR S&P Bank ETF (KBE) gained more than 2 percent. Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and J.P. Morgan Chase all rose more than 1 percent. 

The major averages pared their gains along with the benchmark 10-year Treasury yield. The benchmark rate sat at 2.42 percent in afternoon trading, about 3 basis points below its session high. That move comes a day after reaching its lowest level since December 2017. The 10-year's decline caused a so-called yield-curve inversion as the 3-month Treasury bill yield moved above the benchmark rate. Investors see a yield-curve inversion as a signal that a recession may be on the horizon, so a rise in long-term rates is being viewed as a positive right now.

The yield curve inverted amid the release of weak economic data from the U.S. and around the world as well as a downgraded U.S. economic outlook from the Federal Reserve.

"There's lots of angst about global economic growth. That's understandable because it has been slowing significantly since early 2018," Ed Yardeni, president and chief investment strategist at Yardeni Research, wrote in a note. "Furthermore, we can all observe that ultra-easy monetary and debt-financed fiscal policies aren't as stimulative as policymakers have been hoping."

Traders work on the floor of the New York Stock Exchange.
Spencer Platt | Getty Images

Housing starts fell 8.7 percent in February, widely missing expectations. Building permits declined, but at a slower rate than forecast by economists. Consumer confidence declined in March to 124.1 from 131.4 in February, according to data from The Conference Board.

The Dow closed Monday with a small gain. News that special counsel Robert Mueller did not find evidence that President Donald Trump colluded with Russia in the 2016 presidential race bolstered the markets by removing some uncertainty. Investors were also hopeful that with the Mueller investigation out of the way, Trump will turn his attention to cementing trade deals.

However, concerns regarding the global economy capped market gains in the broader market.

"Expectations are for a pretty weak first quarter overseas to go along with a fairly weak U.S.," said Sam Stovall, chief investment strategist at CFRA Research. "The real question is whether it's just a weak first quarter and then it recovers. Our expectation right now is that it is more of a soft landing."

"I think we're just going through a pretty healthy digestion of gains," Stovall said. "Q1 softness will probably be followed by a recovery in Q2, both on an economic perspective as well as an earnings outlook. I would tell investors you are probably better off buying than you are bailing."

Equities rallied to start off 2019, with the S&P 500 rising more than 12 percent year to date.

Shares of Bed Bath & Beyond skyrocketed more than 21 percent after The Wall Street Journal reported three activist investors are trying to replace the company's entire board of directors.

Nvidia shares rose 1.8 percent after Piper Jaffray initiated coverage of the chipmaker with an overweight rating, noting its attractive valuation.

—CNBC's Silvia Amaro contributed to this report.