Stocks got the second half off to a positive start Wednesday after logging their best quarter in a decade.
"We're seeing a classic bull-bear battle here," said Tom Schrader, managing director for U.S. equity trading at Stifel Nicolaus Capital Markets, adding that traders were watching to see if major indexes break above their 200-day moving averages, which could trigger more buying.
In the short term, we'll probably see a rally in the next few days, veteran trader Art Cashin, director of floor operations for UBS, told CNBC.
"There's usually a slight [upside] prejudice in the first three trading days of the month. ...There's new money for the new month: pre-funding pensions, things like that."
The Dow Jones Industrial Average rose 57.06, or 0.7 percent, to close at 8,504.06. The blue-chip index was up more than 100 points earlier but ended off their highs amid worries about Thursday's jobs report.
The S&P 500 gained 0.4 percent and the Nasdaq added 0.6 percent.
Meanwhile, the CBOE Volatility Index, widely considered the best gauge of fear in the market, dropped below 25 for the first time since September 2008, just before the collapse of Lehman Brothers. But it ended at 26.22.
Investors cheered a fourth-straight increase in home sales and shrugged off a disappointing reading on manufacturing and drop in mortgage applications.
Mortgage applications tumbled to a seven-month low and home-refinancing requests dropped 30 percent as rising mortgage rates scared off new homebuyers.
Pending-home sales rose 0.1 percent in May, slightly more than expected, and April's reading was upwardly revised. This marks the fourth straight month pending-home sales have risen; the last time there were four straight gains was October 2004.
Meanwhile, the Institute for Supply Management reported its manufacturing index rose to 44.8 in June from 42.8 in May, just slightly higher than expected. The gauge is ticking ever higher to the 50 mark, which indicates expansion; readings below 50 indicate contraction.
But construction spending fell 0.9 percent in May, more than expected, to its lowest level in five years.
Now, the market is turning to the employment situation, waiting for the government's June jobs report, due out Thursday. Typically the report is issued on a Friday but is out a day early this month due to the Fourth of July holiday.
Traders are expecting to see fewer jobs lost in June than in May, which would be a boost for the market. But, if the unemployment rate tops 10 percent, you're likely to see some selling, Schrader said.
According to the latest Reuters poll, economists expect to see 355,000 nonfarm jobs shaved from payrolls and for the unemployment rate to tick up to 9.6 percent, its highest since June 1983, from 9.4 percent in May.
We got a couple of preview reports on the jobs situation today: ADP reported that private employers slashed 473,000 jobsfrom their payrolls in June, more than expected, while planned layoffs fell for a fifth straight month.
A separate report from outplacement firm Challenger, Gary & Christmas showed planned layoffs at US firms in June at their lowest level since March 2008.
Ford shares slipped 2.6 percent despite the fact that the automaker reported its U.S. sales fell 10.9 percentin June, near the top of expectations, and surpassed Toyota as the No. 2 automaker.
General Motors reported its sales dropped 33.6 percent, while Chrysler's plunged 44.2 percent. Toyota and Honda both logged declines of about 30 percent.
On the earnings front, General Mills , which makes Cheerios cereal and Yoplait yogurt, beat earnings expectationsand projected fiscal-year earnings far above analysts' expectations, helped by new products and easing commodity costs. Its shares rose 3.9 percent.
Wal-Mart shares slipped after the discount giant broke with some other large companies and backed the part of President Obama's health-care plan that requires large companies to provide health insurance for employees.
Microsoft's rose 1.1 percent after the software maker's new Bing search engine gained market sharein June, though it still trails Google . Google shares fell 0.7 percent.
In IPO news, shares of LogMeIn, which makes remote-login software, jumped 25 percent on their debut on the Nasdaq, after pricing at $16 a share.
All but one IPO this year have priced at or above the expected range. The exception was online university Bridgepoint Education . Bridgepoint shares fell 4.2 percent today.
American depositary shares of Skystar Biopharmaceutical tumbled 23 percent after the China-based company that makes medicine for livestock priced a $1.4 million offering at $12.98 a share, a nearly 28 percent discount to Tuesday's closing price.
The Nasdaq and S&P 500 ended June with gains for the fourth straight month. For the Dow, it came down to the final session, but those losses put the Dow on the negative side for June, ending a three-month winning streak.
For the quarter, the Dow, S&P 500, and Nasdaq all gained, marking the first quarterly gains for the Dow and S&P 500 since the third quarter of 2007. The new quarter may get off to a positive start, with U.S. stock index futures and European averages pointing higher ahead of the open.
Still to Come:
THURSDAY: Weekly jobless claims; May jobs report; factory orders
FRIDAY: All U.S. financial markets closed for the Independence Day holiday
- Peter Schacknow contributed to this article