Stocks continued to rally Monday as investors found buying opportunities in oversold stocks and as they took heart from stepped up M&A activity.
All key S&P 500 sectors gained, led by energy, technology and industrials.
As of Friday's close, the Dow had fallen 4.3 percent from its 2011 high on Feb. 18, while the S&P 500 had fallen 4.75 percent. Investors who believed stocks had been oversold began buying stocks at the end of last week, and that buying continued on Monday.
"The market has already discounted the worst case scenario, and is now looking forward," Dan Fitzpatrick, president of Stockmarket Mentor said on CNBC.
In the face of extreme volatility, however, Fitzpatrick said it is a "traders market, because of all the uncertainty."
In a research note, UBS Wealth Management said prices of life insurers and tech companies specifically fell too far. According to UBS, losses among life insurers will be small, and losses among property and casualty insurers will be "manageable," Strategists Brian Rose and Stephen Freedman wrote in a note to clients.
Fears that the tragedies in Japan would crimp production of key supplies to U.S. tech companies sent those stocks falling last week. Those concerns may be warranted, but only in the short-term, Rose and Freedman wrote.
"It is important to recognize that any negative impacts are likely to be temporary," they said.
Analysts expect AT&T's plans to buy T-Mobile U.S. from Deutsche Telekom, which was subject to approval by regulators, will be positive for both AT&T andDeutsche Telecom. The merger would create the largest wireless provider in the U.S.
Shares of Sprint, however, sank, as the AT&T deal would make it more difficult for Sprint to gain subscribers, according to Sanford Bernstein, which downgraded Sprint to "underperform" from "market perform."
Meanwhile, Verizon gained after S&P Equity upgraded the telecom company to "hold" from "sell," saying the AT&T/T-Mobile deal offers Verizon "opportunities to defend and perhaps increase its wireless market share in the near term."
Commodities and currency prices fell after news the Treasury planned to sell $142 billion in mortgage-backed securities, on the perception "easy money” was coming out of market and liquidity would suffer.
The price of gold pared back, but still traded above $1,431 an ounce. The price of silver fell.
London Brent crude rose above $115 barrel, while U.S. light sweet crude traded at more than $102 a barrel.
Japan’s nuclear crisis continued to unnerve investors amid news Japan’s nuclear safety agency said there was no need to widen the evacuation areas around the earthquake-hit reactors, but the World Health Organization saidcontamination of some foods and water with trace amounts of radioactivity is a more serious problem than originally expected.
The market also may have gotten a boost from comments by Warren Buffett, who said the tragedies in Japan have made shares of Japanese companies attractive buying opportunities, according to Simon Denham, CEO of Capital Spreads.
Elsewhere in corporate news, Citigroup shares gained after the banking giant announced a 1-for-10 reverse stock split,which will reduce Citi's outstanding common shares. The bank also said it will reinstate a quarterly dividend in the second quarter. The dividend will be 1 cent.
Kraft was among the few Dow components to fall after JPMorgan downgraded the processed foods maker to "neutral" from "overweight," citing Kraft's loss of the Starbucks' licensing agreement among other factors.
Among the best Dow performers, Boeing got a boost after its 747-8 Intercontinental, the new passenger version of its jumbo jet, the original 747, had a successful first flight over the weekend.
New York Times gained more than 3 percent after Citigroup raised the publisher to "buy" from "hold," citing the shift to online subscribers.
On the economic front, existing home sales fell well below expectations, dropping 9.6 percent to 4.88 million units. That's also a 2.8 percent year-over-year drop.
In the currency markets, traders will be seeking signs that central banks may take additional action to weaken the yen following an agreement last week to intervene as the currency soared in the wake of Japan’s disastrous earthquake and resulting nuclear crisis. The yen has fallen against the dollar.