The Dow Jones Industrial Average soared more than 400 points to a record after falling bond yields and a new stimulus package spurred investors to snap up stocks that will benefit from a faster recovery from the pandemic.
The blue-chip Dow jumped 464.28 points, or 1.5%, to close at a record high of 32,297.02. The S&P 500 added 0.6% to 3,898.81, led by energy and financials. The Nasdaq Composite closed less than 0.1% lower at 13,068.83 after gaining as much as 1.6% earlier in the day. The tech-heavy benchmark enjoyed a 3.7% rally in the previous session for its best day since November.
House Democrats passed a $1.9 trillion coronavirus relief bill Wednesday, sending it to President Joe Biden, who is expected to sign Friday. Biden said checks of up to $1,400 should start going out this month.
Cyclical stocks, or those most sensitive to an economic rebound, led the gains, resuming the trend seen in the past few weeks. The S&P 500 energy sector jumped 2.6%, bringing its 2021 gains to more than 39%. Industrials, materials, and financials all advanced more than 1%.
"Today's strength is coming from pro-cyclical stocks as investors continue to oscillate back and forth between beneficiaries of cyclical growth and those better secularly positioned," said Chris Hussey, a managing director at Goldman Sachs.
The small-cap Russell 2000 outperformed with a 1.8% gain as investors piled into beaten-down value stocks.
Meanwhile, tame inflation data out Wednesday eased worries about rising prices that have jolted yields higher and unnerved equity investors. The 10-year Treasury yield fell 2 basis point to 1.52%.
The Labor Department said consumer prices increased 0.4% in February, matching expectations from economists polled by Dow Jones. The Consumer Price Index gained 1.7% on a year-over-year basis, also in line with estimates.
"The biggest concern that markets have had over the last month or so has been inflation running hotter than we estimate. Clearly CPI puts that to rest, at least for today," said Art Hogan of National Securities. "The yield on the 10-year has ceased going parabolic."
The comeback rally in high-growth tech stocks took a breather after the massive snapback in the previous session. Tesla dipped 0.8% after surging nearly 20% for its best day in more than a year. Cathie Wood's flagship active Ark Innovation fund (ARKK) slid 0.3% following its biggest one-day gain ever.
Higher rates have raised concerns about valuations for tech stocks. The tech-heavy Nasdaq had fallen into correction territory on Monday, or down more than 10% from its recent high.
The anticipated stimulus and rise in rates has divided the market recently, largely favoring stocks leveraged to a recovering economy over the tech and growth stocks that led during the pandemic.
The widely watched 10-year Treasury auction of $38 billion in notes Wednesday was met with adequate demand. The result eased concern among traders that the country's growing debt burden would be too much for the market to bear, which would hit bond demand and force yields even higher.
The 10-year yield remained slightly lower following the auction. The benchmark rate topped the 1.6% threshold again on Monday. Bond prices move in opposite direction to yields.
"I think bonds are still oversold at the point," said Kimberly Woody, portfolio manager at Globalt Investments. "In terms of rates, we are still in a very defined trading range. I think we will see lower rates before we see higher rates."
UBS turned more bullish on stocks for the year with incoming stimulus and pent-up consumer spending. The Wall Street firm hiked its year-end S&P 500 target to 4,250 from 4,100 on Tuesday, representing a near 9% gain from here.
— CNBC's Patti Domm and Michael Bloom contributed reporting.