Stocks ended higher Tuesday with the Dow gaining more than 100 points to snap a five-day losing streak. The rally followed a series of government data releases and earnings reports that showed hints of strength returning to the economy.
The Dow Jones Industrial Average ended up 103.8 points, or 1 percent, to 10,405.85 amid light volume, and after losing about 40 points in the last half hour of trading.
Most Dow components were in positive territory with Home Depot, Alcoa and DuPont in the lead. Kraft and JP Morgan fell.
The S&P 500 ended up 13.2 points, or 1.22 percent, to 1,092.54 and the Nasdaq ended up 27.6 points, or 1.3 percent, to 2,209.44. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell more than 7 percent, below 24.
The key S&P sectors were all higher Tuesday, led by materials, industrials and consumerdiscretionary.
The rally may be attributed to a report of stronger-than-expected industrial production, which provided evidence the manufacturing sector is strong, and a better-than-anticipated capacity utilization rate, said Paul Zemsky, head of asset allocation at ING Investment Management.
Capacity utilization rose to 74.8 percent, 5.7 percentage points above a year earlier, indicating that industry is increasing its output. That news helped quell deflation fears, said Zemsky. Housing starts and producer price data released Tuesday was also largely positive, giving investors reason to cheer a bit, he added.
"There's plenty of room for the market to rally on good news," Zemsky said.
Despite the strong showing Tuesday, the market is still trading within a range that Brian Gendreau, market strategist at Financial Network, doesn't expect will be broken until after the mid-term elections and the uncertainty over the direction in Washington is resolved.
Once the mid-terms are over, Gendreau expects stocks to rise and end the year higher. One reason: in the 17 mid-term elections held since 1942, the market has gone up decisively 16 times, Gendreau said.
In earnings news, Home Depot shares jumped more than 3 percent after the home improvement retailer reported a slightly higher-than-forecast profit. However, the retailer's quarterly revenue was lower than expected.
Wal-Mart also rose after the retail giant posted a higher-than-expected quarterly profitand raised its full-year forecast, thanks to cost cuts and international growth. The company, however, said the slow economic recovery will continue to affect consumers.
As a sign of weaker consumer interest, Wal-Mart reported its fifth consecutive drop in same store sales, and the outlook isn't much better, Patrick McKeever, a senior equity analyst at MKM Partners, said on CNBC.
"We could see another negative quarter," McKeever said.