Who's afraid of the big, bad Federal Reserve? Not Wall Street, which finally came to grips with a potential June rate hike after a week of worry.
The S&P 500 was up 1.4%, the Dow Jones Industrial Average gained 1.2%, and the Nasdaq climbed 2%.
A rate hike in June now has a roughly 30% probability, according to CME Group, far higher than less than a 10% chance at the beginning of the month. Volatility spiked over the past week as minutes from the Fed's April meeting shattered the perception that the central bank wouldn't be ready to raise rates until later this year.
Talk of a June rate hike continued on Tuesday, but didn't cause the same upheaval as earlier. Philadelphia Fed President Patrick Harker joined the chorus of Fed speakers, arguing that the central bank could raise rate two or three times this year.
"Although I cannot give you a definitive path for how policy will evolve, I can easily see the possibility of two or three rate hikes over the remainder of the year," Harker told an audience in Philadelphia on Monday. "If the data comes in and it's not that consistent with my view of the strength in the economy, then I would pause, but otherwise, I think a June rate increase is appropriate."
The tech sector led markets higher on Tuesday. Major tech giants including Apple (AAPL - Get Report) , Alphabet (GOOGL - Get Report) , Microsoft (MSFT - Get Report) , Facebook (FB - Get Report) and Alibaba (BABA - Get Report) climbed, while the Technology Select Sector SPDR ETF (XLK - Get Report) rose 1.9%.
New home sales surged 16.6% to a seasonally adjusted annual pace of 619,000 in April as builders increased construction to meet demand. Analysts expected an annual pace of 525,000. The reading marked the biggest increase in 24 years. The median price of new homes picked up 7.8% to $321,000 as supply remains constrained.
"Monthly new home sales are a notoriously volatile series, so we are reluctant to make much of monthly movements," said Kevin Cummins, U.S. economist at UBS Investment Bank. "However, even smoothing through the monthly volatility, it does appear the trend is moving steadily upward into the key spring selling season."
In deals news, Monsanto (MON) announced that Bayer's (BAYRY) bid was too low, though it was open to continued negotiations. The U.S.-based agricultural company said the bid undervalues Monsanto and does not adequately address regulatory risks.
In earnings, DSW (DSW) slumped after reporting a smaller-than-expected first-quarter profit and reducing its full-year outlook on weaker shoe sales. The shoes and accessories retailer blamed a "challenging retail environment." DSW predicts a full-year sales decline between 1% to 2%.
Best Buy (BBY - Get Report) fell 7.4% after forecasting a weaker-than-expected second quarter and announcing the departure of Chief Financial Officer Sharon McCollam, effective June 14. The electronics retailer expects second-quarter earnings between 38 cents and 42 cents a share, trailing consensus of 50 cents. Best Buy also expects full-year sales and earnings to come in flat for the year.
AutoZone (AZO) was climbed despite a disappointing third quarter tied to rough weather in Midwestern, Middle Atlantic, and Northeastern states. The auto-parts retailer reported a 4% sales increase to $2.59 billion, though revenue fell short of consensus of $2.65 billion. Same-store sales rose 2% in the third quarter, compared to 2.3% in the year-ago period.
Toll Brothers (TOL - Get Report) gained 8.7% after posting a better-than-expected second quarter. Profit-per-share rose to 51 cents from 37 cents in the year-ago quarter, topping estimates of 46 cents. Revenue surged 31% to $1.12 billion. Toll Brothers has benefited from a robust housing sector which has seen resilient construction growth despite a downturn elsewhere in the economy.