The Dow made a triple-digit jump on Tuesday and the S&P 500 rebounded from its largest decline in two months, after upbeat retail-sales data for December helped offset lingering concerns from Friday's monthly jobs report.
"The biggest factor (driving the market) was the reassurance that people took from the retail numbers and the sales growth there. We're now shifting back to the basic idea that the jobs number was something of an aberration, so we can go back to the positive tilt we had," said Bruce McCain, chief investment strategist at Key Private Bank.
The Dow Jones Industrial Average closed 115 points higher, with Intel leading blue-chip gains that included 25 of its 30 components.
The S&P 500 climbed 19 points, or 1.1 percent, with technology and energy the best performing of its 10 major sectors. The Nasdaq gained 69 points, or 1.7 percent.
Earlier, the Commerce Department reported retail sales rose 0.2 percent last month after a 0.4 percent advance the prior month.
The gauge of consumer spending was viewed as particularly important in light of Friday's dismal jobs report for December, which had the government reporting the addition of 74,000 to non-farm payrolls, far below estimates of about 200,000. The Bureau of Labor Statistics also reported the unemployment rate fell to from 7 percent to 6.7 percent, with decline chalked up to the high number of those not actively looking for work.
But Randy Frederick, director of trading and derivatives at Charles Schwab, says the participation rate, while low, was the same as in October, when the unemployment rate stood at 7.2 percent. "The market seemed to take it as a very negative report, but the unemployment rate dropping should have been positive. It's not just a number and a rate, there's a lot more to it than that," he said.
Time Warner Cable rose nearly 3 percent after spurning a bid from Charter Communications and Google advanced 2.3 percent after saying it would purchase digital-thermostat manufacturer Nest Labs for $3.2 billion.
Tesla Motors surged 15 percent after deliveries of its Model S sedan in the fourth quarter topped what the electric-car maker had forecast. Gamestop fell nearly 20 percent after the video-game retailer projected fourth-quarter profit below expectations.
The dollar fluctuated against the currencies of major U.S. trading partners, while the yield on the 10-year Treasury note climbed 5 basis points to 2.876 percent.
On the New York Mercantile Exchange, crude-oil futures for February delivery rose 88 cents to $92.71 a barrel and gold futures for February delivery lost $5.70 to settle at $1,245.40 an ounce
Tuesday's economic data included The National Retail Federation reporting holiday sales climbed 3.8 percent to $601.8 billion in November and December, with the number coming in just shy of the group's forecast.
Another economic report had U.S. import prices coming in flat in December, versus expectations calling for a 0.3 percent increase. And the Commerce Department said business inventories rose 0.4 percent in November, suggesting restocking would be a boost to fourth-quarter economic growth.
On Monday, stocks fell sharply after Federal Reserve Bank of Atlanta President Dennis Lockhart said tepid payrolls growth in December should not dissuade central bank officials from reducing monthly asset purchases.
On Tuesday, Philadelphia Fed President Charles Plosser said Fed stimulus should end later in the year with the economy in better shape than it's been the last few years, and Dallas Fed President Richard Fisher advocated the Fed trim its bond buying as rapidly as possibly.