Consumer confidence increased by the most since 2003 and European finance ministers discussed efforts to tame the debt crisis as stocks rose again Tuesday, following the biggest gain in a month for the Standard & Poor's 500 index.
The S&P 500 advanced 2.64 points, or 0.2 percent, to 1195.19, making its two-day gain 3.2 percent. The Dow Jones industrial average added 32.62 points, or 0.3 percent, to 11,555.63. The Nasdaq composite bucked the trend, falling 11.83 points, or 0.5 percent, to 2515.51.
"Consumer confidence will be critical to how we weather the next few months," says Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp. "Everybody is still on the edge of their chair about whether or not you get the financial crisis solved in Europe."
The S&P 500 on Monday snapped a seven-session decline after Thanksgiving weekend retail sales rose to a record and amid speculation that European leaders will boost efforts to end the debt crisis. The benchmark gauge was still down 4.8 percent in November through Monday as a measure of financial shares tumbled 10%.
Stocks extended gains Tuesday as a report showed that consumer confidence snapped back more than forecast in November as Americans turned less pessimistic on the outlook for jobs. Federal Reserve Vice Chairman Janet Yellen said the central bank has leeway to spur the U.S. recovery by purchasing more assets. Federal Reserve Bank of Atlanta President Dennis Lockhart said in a separate speech that expanding securities purchases is unlikely to give a sufficient boost to U.S. growth.
Europe's effort to expand its bailout fund is falling short, forcing eurozone finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis.
The S&P 500 will probably be stuck in a 250-point trading range next year as Europe's debt crisis offsets optimism about U.S. earnings, according to JPMorgan Chase.
The benchmark index for U.S. stocks will most likely fluctuate between 1100 and 1350, forming an "inside-range year" by staying roughly within the band seen this year, says Michael Krauss, JPMorgan's head of technical research. He sees a 12 percent chance of a recession that would push the S&P 500 as low as 800. The odds of the index rising to 1500 because of progress on the crisis or stimulus from central banks are 8 percent, Krauss said.
"The markets now are like ships caught in the treacherously stormy seas of headline risk," Krauss wrote in a note to clients.
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