The Dow Jones industrial average rose 106 points to close at another record Tuesday, bouncing back from a loss the week before. The Standard & Poor's 500 index also gained. The S&P is on track for its seventh straight monthly increase, the longest winning streak since 2009.
"They say the stock market tends to lead the economy. Now we're starting to see the improvement on the economic front, so there's some justification for this rally," said Ryan Detrick, a senior technical strategist at Schaeffer's investment research.
The yield on the 10-year Treasury note jumped to 2.17 percent, its highest level since April 2012, as investors moved money out of safe assets and into riskier ones like stocks. That's a big move from Friday's level of 2.01 percent. Markets were closed Monday for Memorial Day.
The stock market is coming off a rare loss last week, when both the Dow and the S&P 500 index had their first losing weeks in a month. Investors worried that the Federal Reserve might slow its extraordinary economic stimulus measures, which have also supported the stock market's advance.
The gains were broad. Eight of the 10 industry groups in the S&P 500 index rose, led by financial stocks. The only groups that fell were utilities and telecommunication companies, which investors tend to buy when they're seeking stable, safe stocks that pay high dividends. All but six of the 30 stocks in the Dow rose.
Some of the most eye-catching price moves were in the bond market.
Bond yields are rising in anticipation that the Fed may ease back on its $85 billion monthly bond purchases. Tim Courtney, chief investment officer at Exencial Wealth Advisors, is among those who see a bleak outlook for the bond market. While inflation is currently low, it will likely start to rise within one or two years if the economy continues to improve, Courtney said.
Higher inflation prompts investors to demand higher yields, pushing down bond prices and inflicting losses on bond investors.
"The only way that bonds can make money from here is if we go a prolonged period of time with very, very low inflation and rates just don't move up a whole lot at all," said Courtney. "Under any other scenario they lose."
Treasury yields are used as benchmarks to set interest rates for consumer loans and mortgages. While they have increased sharply this month, they are still relatively close to the record low of 1.39 percent reached last July.
The Standard & Poor's/Case-Shiller survey, which was released before stock trading opened, found that U.S. home prices rose 10.9 percent in March, the most since April 2006. A growing number of buyers are bidding on a tight supply of homes. Beazer Homes jumped 44 cents, or 2.1 percent, to $21.79.
Stocks extended their gains in the morning after the Conference Board reported at 10 a.m. that its measure of consumer confidence rose in May to its highest level since February 2008.
The Dow was up as much as 218 in the early going, then gave up some of its gain in the afternoon.
Some analysts said investors were likely booking gains as the end of the month approached on Friday. The Dow is up 3.8 percent so far in May. The S&P 500 is 3.9 percent higher.
"It's the end of the month," said Quincy Krosby, a market strategist at Prudential Financial. "If you've been long and you'd done very well you want to lock in those gains."
The Dow closed 106.29 points, or 0.7 percent, higher at 15,409.39. The index has risen for 20 straight Tuesdays. The longest streak of consecutive gains for any day of the week was sent in 1968, when there were 24 gains on Wednesdays, according to Schaeffer's Investment Research.
The S&P 500 index rose 10.46 points, or 0.6 percent, to 1,660.06. The Nasdaq composite index climbed 29.74 points, or 0.9 percent, to 3,488.89.
The Dow has advanced 17.6 percent this year and the S&P 500 index is 16.4 percent higher as investors have piled into stocks.
Unlike the first three months of the year, when the biggest gains were in large companies in steady industries that pay big dividends, investors have been bidding up the stocks of companies that will gain more if the economy continues to strengthen. That shift out of lower-risk stocks, like utilities, and into more "cyclical" stocks, like banks and industrial companies, means investors are becoming more aggressive in seeking returns and more comfortable taking on risk.
Another bullish signal for the market is the strong growth in small-company stocks. Those stocks have a greater potential for appreciation but also tend to carry greater risk than large, diversified companies. The preference for small stocks was on display again Tuesday as the Russell 2000 index of small-company stocks rose 1.3 percent, more than other market indexes, to 997.35 points, a gain of 13.08 points. Its year-to-date increase of 17.4 percent is 1 percentage point greater than that of the S&P 500.
Among other stocks making big moves:
--Tiffany rose $3.01, or 3.9 percent, to $79.22 after the high-end jewelry seller said its first quarter net income rose 3 percent as sales improved across all regions. The results beat the forecasts of Wall Street analysts.
--Tesla Motors jumped $13.25, or 13.7 percent, to $110.33. Last week the electric car maker raised almost $1 billion from a bond and stock offering and paid off a government loan nine years early. The company is also set to announce this week that it's expanding a network of car-charging stations.
--Railway operator CSX fell 20 cents, or 0.8 percent, to $25.30 after one of its freight trains derailed in a Baltimore suburb.
--Electricity company FirstEnergy dropped 6.5 percent, or $2.76, to $39.86 after Credit Suisse stripped the company of its "outperform" rating, saying that a glut of energy would push down prices the company is able to charge.
In commodities trading, the price of oil rose 86 cents, or 0.9 percent, to $95.01. Gold fell $7.70, or 0.6 percent, to $1,378.90 an ounce. The dollar rose against the euro and the Japanese yen.
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