The Dow Jones Industrial Average rose 113.99 points (0.44%) on Tuesday to close at 25,971.06, while the S&P 500 added 10.76 (0.37%) to finish at 2,887.89 and the Nasdaq Composite gained 48.31 (0.61%) to end at 7,972.47. Meanwhile, the 10-year U.S. Treasury yield rose four basis points to finish at 2.98%.

The market movements were something of an abnormality, as rising yields tend to indicate rising inflation and often scare investors off. But Tuesday was different. It was all about surging confidence.

John Traynor, chief investment officer at People's United Advisors, told TheStreet that higher Treasury yields are "an indicator to us that the economy is continuing to improve, and it is the market's assessment that the economy is improving and that inflation is picking up."  Traynor also noted that the NFIB Small Business Optimism Index, released Tuesday by the National Federation of Independent Business, ticked up to a record 108.8 in August.

The analyst said stocks didn't gain much earlier this year when yields rose, as U.S. business and economic results simply weren't as strong as they are now. "We had a pretty soft first quarter from a GDP standpoint, so the market really didn't start taking off until the spring," Traynor said. "We only recently started to get the confirmation [of a strong U.S. economy] through earnings and GDP that the economy is doing well."

Other analysts agree. "It's all about the market shrugging off geopolitics in favor of the broad-based strength in the economy," Mike Loewengart, vice president of investment strategy at E-Trade, told TheStreet. "Earlier in the year, the strength we're seeing in the economy today wasn't so clear. There were a lot more question marks."

But Loewengart said there's now "a fair amount of confidence that we are both on solid economic footing and that the [Federal Reserve] will make good on its drive to raise rates two more times this year. Further, we've just exited a very strong earnings season punctuated by beats, positive revisions and future growth prospects, which the market likely believes will continue in the near-term."

The market might also be recognizing that companies are able to stomach a higher cost of debt going forward. "What you're hoping is that rates move up because of credit demand," Traynor said, explaining that if demand for credit isn't there, higher rates are a bad thing. But he said that "we're starting to see signs that capital spending is increasing," and that can often include debt financing for capital projects.

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