Inflation is low, earnings are high, investors are happy.
It was the second day of broad gains following a down week last week. Investors had been worried headed into the third-quarter earnings season that corporate profits wouldn't be good enough to justify the run-up instocks in recent months. While earnings haven't been out-of-the-park great, they haven't been as bad as some had feared.
Also Tuesday, the Labor Department said consumer prices rose just 0.1 percent last month, not counting food and energy costs. And gasoline prices have come down since then. Low inflation leaves consumers with more money to spend, and leaves the Federal Reserve free to continue its efforts to boost the economy.
In addition, an index of homebuilder sentiment came in at its highest level since 2006, suggesting that the construction industry is making a comeback.
The Dow Jones industrial average rose 127.55 points to close at 13,551.78, its biggest gain since Sept. 13.
The gains were broad, with nine out of 10 industry groups in the S&P 500 index rising. Telecom stocks had a tiny decline. Materials stocks rose 2.4 percent.
Johnson & Johnson rose 95 cents to $69.55 after revenues came in ahead of Wall Street's forecasts.
Among companies reporting after the closing bell, IBM fell in after-hours trading after its revenues came up short of Wall Street's forecasts. Intel fell after its earnings and revenue came in below forecasts.
Other stocks making big moves included:
Apple rose $15.03, or 2.4 percent, to $649.79 after the company sent out invitations for an event next Tuesday where it is expected to announce a smaller iPad.
Citigroup rose 59 cents $37.25 following the sudden departure of CEO Vikram Pandit, who had steered the bank through the 2008 financial crisis. Pandit, who is also stepping down from the company's board, is being replaced by longtime Citi executive Michael Corbat.
A123 Systems Inc., a maker of electric batteries for vehicles, put its U.S. operations into Chapter 11 bankruptcy protection and said its automotive assets will be acquired by Johnson Controls for $125 million. A123's stock plunged 18 cents to 6 cents.
The yield on the benchmark 10-year Treasury note rose to 1.72 percent from 1.67 percent late Monday.
The euro rose to almost $1.30 against the dollar from $1.29 the day before.