Wall Street's main indexes closed higher Tuesday, with the S&P 500 and the Dow hitting their highest in more than a month, as investors assessed Donald Trump's first actions as U.S. president and breathed relief that he did not start his second term with blanket tariff increases.
Trump did not lay out any concrete plans on the universal tariffs and additional surcharges on close trade partners as previously promised, but said he was thinking about imposing duties on Canadian and Mexican goods as early as Feb. 1.
While investors remain cautious about tariffs and the potential for a global trade war pushing inflation higher, brokerage Goldman Sachs lowered its forecast for the chances of a universal tariff this year to 25% from about 40% seen in December.
"There was a definite relief and a bit of surprise that tariffs weren't called out in the first round of executive actions that happened yesterday," said Carol Schleif, chief market strategist at BMO Private Wealth. "Markets are leaping to the conclusion, probably rightfully so, that the administration will take a more nuanced approach."
Investors hope the new administration will use the threat of tariffs as a negotiating tactic and take "a scalpel and not a sledgehammer to tariffs," Schleif said.
Last week, the S&P 500 and Dow registered their biggest weekly percentage gains since early November, helped by strong bank earnings and signs that underlying inflation was cooling.
Schleif also noted a healthy broadening of the market rally on Tuesday, with the more domestically focused small-cap Russell 2000 index outperforming larger cap indexes and hitting its highest level since Dec. 18.
According to preliminary data, the S&P 500 gained 52.84 points, or 0.88%, to end at 6,049.50 points, while the Nasdaq Composite gained 126.58 points, or 0.64%, to 19,756.78. The Dow Jones Industrial Average rose 540.68 points, or 1.24%, to 44,028.51.
Among the S&P 500 sectors, industrials were boosted by 3M, which rallied after reporting upbeat fourth-quarter profits.
The utilities sector was lifted by nuclear power stocks after Trump issued a flurry of orders intended to boost energy production. Its biggest gainers included Vistra Corp , NRG Energy and Constellation Energy.
Heavyweight Apple was the S&P 500's biggest drag after brokerage Jefferies cut its rating to "underperform."
Shares of automakers, which are most sensitive to tariffs due to their vast supply chains, rose. Gains in Ford trailed behind those of General Motors, which had a rating upgrade from Deutsche Bank.
During the first year of Trump's earlier administration, the S&P 500 rose 19.4%. The benchmark index rose nearly 68% through his four-year term, but saw bouts of volatility, stemming in part from a trade war Trump fought with China.
However, inflation is still above the Federal Reserve's 2% target, fueling worries that the new administration's policies could delay the central bank's pace of monetary policy easing.
Economists see the Fed leaving borrowing costs unchanged when it meets next week and traders see the first interest rate cut coming in June, according to CME Group's FedWatch tool.
In other individual stocks, Walgreens tumbled after the Justice Department accused it of filling unlawful prescriptions for addictive painkillers and other drugs.
Moderna rallied after securing $590 million from the U.S. government to hasten development of its bird flu vaccine.