Stocks closed broadly higher Tuesday, regaining their footing a day after suffering their worst loss in months.
The S&P 500 rose 0.7%, recovering about half of the index's losses from a day earlier. The majority of big stocks in the S&P 500 notched gains, with oil producers leading the way as crude prices strengthened. Stocks of smaller companies did even better than the broader market, driving the Russell 2000 index of small-cap stocks to a market-leading 1.7% gain.
The market's moves were tenuous early on, though. At one point, the S&P 500 gave up all of an early-morning rise and was down 0.2% even after a report showed U.S. manufacturing grew last month at its strongest rate since 2018.
"While we probably will end up having a pullback sometime in the near future, the bull is not ready to wind down just yet," said Sam Stovall, chief investment strategist at research firm CFRA.
The S&P 500 rose 26.21 points, to 3,726.86. The Dow Jones Industrial Average gained 167.71 points, or 0.6%, to 30,391.60. The Nasdaq composite picked up 120.51 points, or 1%, to 12,818.96. The Russell 2000 climbed 33.19 points, to 1,979.11.
Wall Street's uneven start to the year comes as investors remain optimistic that the economy will recover when more Americans receive coronavirus vaccinations. But that optimism is being kept in check as new infections climb at high rates around the world, threatening to bring more lockdown orders that would punish the economy.
Traders have also focused on the outcome of the runoff elections in Georgia, which will determine which party controls the Senate. Some analysts say the results could mark clear winners and losers in the stock market.
The general thinking is that a Democratic sweep would open the door to higher tax rates, tougher regulation on businesses and other potentially profit-crimping changes from Washington.
But Democratic control of the Senate, White House and House of Representatives could also make another dose of big financial support for the economy more likely. Democrats have lobbied for $2,000 cash payments to go to most Americans, for example, and they could push for more spending on infrastructure projects.
Such stimulus could eventually lead to higher inflation across the economy, something that has been nearly nonexistent for years. Increasing inflation expectations have helped buoy Treasury yields recently, and the yield on the 10-year Treasury rose to 0.95% from 0.9% late Monday.
"There's some risk on the election, but mostly just due to uncertainty," said James Ragan, director of wealth management research at D.A. Davidson.
Concerns about the worsening pandemic continue to weigh on markets. A new, seemingly more contagious variant of the coronavirus is pushing countries to announce or consider more restrictions on businesses. That's threatening Wall Street's widespread belief that financial support offered by central banks and governments can keep the economy afloat until a big recovery sweeps the world later this year after the rollout of covid-19 vaccines.
Energy stocks led the way higher Tuesday as the price of U.S. crude oil climbed 4.9%. Occidental Petroleum jumped 10.1% for the biggest gain in the S&P 500.
The surge in energy stocks is an indication that investors believe the economy will improve this year, driving up demand for oil and pushing up prices, Stovall said.
