Stocks finished near their highs for the day Tuesday, snapping a two-day losing streak. American Express led the Dow after an analyst upgrade.
Financial, retail and technology stocks led the rally but stocks posted gains across the board.
The Dow Jones Industrial Average gained 82.60, or 0.9 percent, to close at 9,217.94, after posting its biggest decline since July 2 on Monday. The S&P 500 rose 1 percent and the Nasdaq jumped 1.3 percent. The VIX, the best gauge of fear in the market, fell back around 26.
Mohamed El-Erian, co-CEO of PIMCO, told Reuters television that he thinks stocks have hit a wall.
"I think what you are seeing is a massive tug of war going on," El-Erian said. "On the one hand, pushing stocks higher are powerful technicals, the fact that very low yields on the front end have pushed cash out of the money market segment and into the risk assets," he explained. "But on the other hand, the fundamentals are such that valuations are ahead of fundamentals."
The market continued its recent pattern of shrugging off certain economic data and continuing in whichever direction it intended to go for the day.
Today's shrugoff was housing starts, which dropped 1 percentin July after an upwardly-revised 6.5-percent jump in June, falling well short of expectations.
While housing starts are off their lows from last year, the gains we've seen recently have "in all likelihood been a rebound from unsustainably weak results rather than the start of anything resembling a sustained “v-shaped” recovery," said Joshua Shapiro, chief economist at MFR Inc.
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"Gains from here on will probably be much more difficult to achieve, as poor labor market conditions, extremely tight credit, overly leveraged household balance sheets, and declining home prices all exert downside pressures."
Meanwhile, a gauge of inflation fell more than expected: Producer prices dropped by 0.9 percent last month, compared with a 1.8-percent gain in June. Economists had expected a 0.3-percent drop.
The market has been buzzing with talk of a correction after the runup since the March lows, and that finally started to materializeMonday as stocks tumbled 2 percent. Just as everyone was wondering if this would be the beginning of a 10-percent correction, the market turned higher.
American Express led Dow gainers, up 4.3 percent, after two firms raised their targets on the stock, one being KBW, which also raised its rating to "outperform" from "market perform."
Other financials were also higher, with Bank of America and Citigroup both up more than 2 percent.
Home Depot was also among the Dow's top percentage gainers, up 3.1 percent, after the home-improvement retailer reported its profit fell but beat analysts’ expectations.
Shares of Home Depot rival Lowe's, continued to slide, falling another 2.3 percent, after dropping 10 percent Monday when the company reported its profit plunged 19 percent, much worse than estimates.
The Nasdaq outperformed other major indexes after RBC cited investment opportunities in smartphone makers and raised its price target on Apple , Research In Motion and Palm . All three stocks rose more than 2 percent, with RIMM and Palm closer to 5 percent.
In today's earnings news, Target reported its eighth consecutive drop in quarterly profit but beat expectations. Its shares rose 7.6 percent.
And TJX , which operates TJ Maxx, Marshalls and Home Goods stores, reported its profit rose 31 percent as consumers continued to bargain shop. The results beat by a penny. But its shares fell 3 percent.
Dow component Hewlett-Packard and chip maker Analog Devices ahead of their earnings after the bell.
HP shares finished up 2 percent, and continued to climb after hours, after the hardware and software maker topped forecasts and said its full-year earnings and revenue would be at the midpoint of its previous forecast.
Analog Devices, which makes chips for cars, videogame consoles, defense equipment and mobile-phone transmitters, beat expectations but shares tumbled after hours as margins fell short of expectations.
Volume was light, with 991 million shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, roughly 4 to 1.
TUESDAY: Earnings from HP and Analog Devices after the bell
WEDNESDAY: Weekly mortgage applications; weekly crude inventories; Earnings from Deere, Limited
THURSDAY: Weekly jobless claims; leading indicators; Philly Fed survey; Earnings from Gamestop, Hormel, and Sears
FRIDAY: Existing-home sales; Earnings from JM Smucker
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