Stocks added to strong gains before the close as a rally sparked by strength in tech and manufacturing drove prices higher, although bank stocks weakened after Wells Fargo reported a slide in revenue.
Among Dow components, Intel, United Technologies and Boeing advanced, while Bank of America slipped.
The S&P 500 and the Nasdaq also rose sharply. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to nearly 15.
Most key S&P 500 sectors gained, led by technology, energy and consumer discretionary, but financials traded flat to lower.
The market continues to wrestle with two simple things: cautious optimism around the recovery and uncertainty over the direction of monetary and fiscal policy, said Doug Godine, head of equities at Signal Hill Capital.
The signs of a good recovery, and not an overheated one, are evident in strong corporate balance sheets and in reasonable expectations by corporations, Godine said.
That good news, reflected in Wednesday's rally, is tempered by the lack of clarity over the future direction of monetary and fiscal policy as Congress and Obama wrestle over the budget, he added.
"What is going to be our stance on debt ceilings? What will be our stance on budget cuts? Where will this shake out in terms of budget bill?" Godine asked. "At some point we’re going to have to figure out what our long-term monetary policy is."
Mark Lamkin, CEO of Lamkin Wealth Management, agrees first quarter earnings are giving investors a legitimate reason to buy stocks, but he is bracing his clients for earnings to suffer "deep" into the second half of the year as rising costs of energy and raw materials hit corporate earnings, along with the effects of austerity policies in the U.S.
"You’re setting up this market for a pretty big correction in the second half of this year," Lamkin said, expecting the market will fall between 12 and 14 percent.
For now, however, Lamkin remains invested in the market, saying "I’m going to ride this thoroughbread as far as it goes," but he added that he's "not afraid to go to 50 percent or 60 percent cash if these trends start to break down."
Investors cheered earnings as they showed companies are benefiting from growing global demand for goods and services. Manufacturers United Technologies and Eaton, for instance, reported better-than-expected results before the market opened Tuesday as global demand for their products rose. Both manufacturers also raised their full-year earnings forecasts.
And AT&T fell despite delivering earnings of 57 cents a share, in line with expectations. The results showed the wireless phone company continued to grow despite the loss of exclusive U.S. rights to Apple's iPhone. AT&T's first quarter net income rose to $3.4 billion from $2.5 billion a year ago.ap
The surge in the markets began after Intel released a surprisingly strong reporton Tuesday, soundly beating forecasts with earnings of 59 cents a share on revenues of $12.85 billion, up from 43 cents on revenues of $10.3 billion a year ago.
Analysts had expected Intel to post earnings of 46 cents on revenue of $11.59 billion, according to Thomson Reuters. At least six brokerages boosted their price target for the firm after the results, pushing the stock up more than 6 percent on high volume.
The fact that Intel doesn't expect to be hurt by supply constraints due to the multiple disasters in Japan was also good news to investors, Godine at Signal Hill said.
The news boosted the entire semiconductor sector. The PHLX Semiconductor Sector Index rose more than 3 percent Wednesday.
IBM and Yahoo also released results after the market closed Tuesday. IBM slipped after reporting earnings better than forecasted, but the tech giant disappointed investors as new business in its global services division fell.
Yahoo , however, jumped after beating forecastswith first-quarter earnings of 17 cents a share, although that was down from 22 cents a year ago. Analysts had expected the search company to post earnings of 16 cents a share, according to Thomson Reuters.
Cree sank after reporting a 58 percent drop in earnings after the bell Tuesday, followed by several downgrades by stock analysts. The maker of LED products suffered from price cuts.
But VMWare soared after reporting surprisingly strong results and lifted the rest of the cloud computing sector with it. Salesforce shot to the top of the S&P 500. At least three brokerages raised their price target for VMWare.
Shares of Google , meanwhile, traded slightly higher despite a ratings downgrade by Citigroup. Citi removed the search engine giant from the CIRA recommended list, and downgraded the stock from "buy/high risk" to "hold/high risk."
CSX advanced after reporting a 30 percent gain in first-quarter earnings as demand and rising prices for shipping offset higher fuel costs. The railroad firm earned $395 million $1.06 a share, up from $305 million or 78 cents a share a year ago.