Stocks added to strong week-to-date performance on Wednesday as investors grew even more confident that the Federal Reserve will lower interest rates this year to reignite an economy wounded by trade battles.
The Dow Jones Industrial Average rose 207.39 points to 25,539.57, while the advanced 0.8% to 2,826.15. The Nasdaq Composite closed 0.6% higher at 7,575.48. The Dow surged more than 500 points on Tuesday — its second-best day of the year —after Fed Chair Jerome Powell opened the door to rate cuts.
Powell said the central bank will keep an eye on current developments in the economy, and would do what it must to "sustain the expansion."
"The Fed is being very accomodative and they seem to be moving in that direction," said Tobias Carlisle, founder of Acquirers Funds. "They're inclined to cut rates by 75 basis points by the end of the year; I think it will be 25 by the end of the year, depending on what happens with Mexico and other things like that."
Tech shares jumped 1.4% while the utilities and real estate sectors got a boost from lower rates. Apple contributed to tech's gains, rising 1.6% after CEO Tim Cook said the company had not been targeted by China amid rising U.S.-China trade fears. Salesforce, meanwhile, rose 5.1% on stronger than expected earnings.
The consumer staples sector also rose more than 1%, led by an 8.6% rally in Campbell Soup. The stock popped on quarterly numbers that topped Wall Street estimates.
Worries over the economy increased recently amid weakening economic data and persisting trade tensions.
"The bad news means the Fed may keep the money cheap and inclined to rate cuts. That's what the market wanted to hear and it backs up the probabilities" of lower rates, said JJ Kinahan, chief market strategist at TD Ameritrade. But "people sometimes forget that rates usually don't come down for good reasons."
Private payrolls increased by just 27,000 in May, according to data from ADP and Moody's Analytics released Wednesday. Economists polled by Dow Jones expected an increase of 173,00 jobs. May's print was the worst since March 2010.
"The slowdown seen in many nonlabor economic statistics finally showed up in a slower rate of hiring," said Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a note. "Also, I don't think there was any impact yet of the May 4th breaking of the US/China trade deal as this survey ended only a few weeks after. Companies don't shift that quickly but the June number could be more reflective since it will also include the Mexico news."
The 2-year rate hit its lowest level since December 2017 on the news, but later recovered. The 10-year yield briefly fell before paring losses.
Trade tensions were slightly assuaged, however, as several Republican lawmakers have noted their opposition to new tariffs on Mexican imports while some have hinted at the possibility of blocking such levies.
White House trade advisor Peter Navarro said earlier on Wednesday that U.S. levies on Mexican goods "may not have to go into effect," depending on how talks between the two countries go.
Meanwhile, Treasury Secretary Steven Mnuchin is scheduled to meet with People's Bank of China Governor Yi Gang this weekend. This would be the first in-person meeting between key trade negotiators from the U.S. and China.
—CNBC's Alex Gibbs and Spriha Srivastava contributed to this report.