NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday as investors resumed the advance after a one-day selloff, scooping up tech and financial shares despite Google's potential shutdown of its China operations and mea culpas from the nation's major bank executives.
The Dow Jones industrial average (INDU) rose 53 points, or 0.5%, closing at its highest point since Oct. 1, 2008. The S&P 500 index (SPX) rose 9 points, or 0.8%. The Nasdaq composite (COMP) gained 26 points, or 1.1%.
Stocks fell Tuesday after Alcoa's weaker-than-expected profit report and a profit warning from Chevron raised worries about the strength of the fourth-quarter reports.
After 2009's huge recovery from the brutal selloff of the financial crisis, gains are going to be harder to come by this year, said Robert Siewert, portfolio manager at Glenmede.
"What we are looking for in 2010 is the handoff of a rally that was initially driven by liquidity to a slower advance on the back of fundamentals," he said. "Fundamentals will have to take over."
He said that while the momentum is still alive, it's going to take some improved profit reports to provide that fundamental component.
"Alcoa has disappointed of late and I'm not sure that they should be used as the tell for how earnings season will progress," he said. "I think we'll see another quarter of earnings beating estimates, if only because the comparisons to a year ago are easy."
One year ago, in the thick of the financial crisis, S&P 500 companies posted their worst results in the history of earnings tracker Thomson Reuters, with profits dropping 67% from the previous year.
This quarter, earnings are expected to have risen over 200%, largely due to a snap back in the bank sector.
Banks: Financial shares rallied even as CEOs of the largest financial institutions testified on Capitol Hill about mistakes made in the lead-up to the financial crisis.
Goldman Sachs' Lloyd Blankfein, Bank of America's Brian Moynihan, Morgan Stanley's John Mack and JPMorgan Chase's Jamie Dimon were among those testifying before the bipartisan Financial Crisis Inquiry Commission.
The executives agreed that the banks took on too much risk and that mistakes were made, including underestimating the depth of a housing market implosion. But they also denied being aware at the time that a financial crisis of such magnitude could develop.
The fact that many of the banks that helped fuel the financial crisis are now profiting soundly a year later is a major source of frustration to consumers, especially since taxpayers helped fund their bailouts.
At the same time, the FDIC, the top banking regulator, is considering requiring lenders to pony up if they tie compensation to risky practices.
Google and China: Google (GOOG, Fortune 500) shares were little changed after the Internet behemoth threatened to pull out of China due to reported cyber attacks and attempts to access the Gmail accounts of human rights activists. The company said it is one of at least 20 companies that has been attacked.
Google's presence in China is minimal so far. But the Chinese market is considered to be one of the fastest-growing and most lucrative technology markets in the world, begging the question of whether Google will really walk away.
On the move: Merck (MRK, Fortune 500) shares rallied 3.7% after brokerage Credit Suisse upgraded it to "outperform" from "neutral" and lifted its 12-month price target on the drugmaker, according to reports.
Market breadth was positive. On the New York Stock Exchange, winners beat losers by nearly three to one on volume of 970 million shares. On the Nasdaq, advancers topped decliners by over two to one on volume of 2.35 billion shares.
Economy: In the afternoon, the Federal Reserve released its periodic "beige book" report on the economy. The report showed that economic conditions generally improved in the Fed's 12 districts, but that credit conditions deteriorated.
The December Treasury budget showed a deficit of $91.9 billion, versus $120.3 billion in November, roughly in line with forecasts for a deficit of $92 billion.
World markets: Asian markets ended lower and European markets ended mixed.
Commodities and the dollar: The dollar fell versus the euro and gained against the yen.
COMEX gold for February delivery rose $7.40 to settle at $1,136.80 an ounce. Gold closed at an all-time high of $1,218.30 an ounce last month.
U.S. light crude oil for February delivery fell $1.14 to settle at $79.65 a barrel on the New York Mercantile Exchange.
Bonds: Treasury prices slumped after a $21 billion offering of 10-year notes saw strong demand. The slide raised the yield on the 10-year note to 3.79% from 3.71% late Tuesday. Treasury prices and yields move in opposite directions.
Talkback: With the economy in recovery mode and a new year underway, what's your 2010 plan for your portfolio? Will you invest more, less or not at all? Are you willing to take on more risk? E-mail your story to firstname.lastname@example.org and you could be featured in an upcoming article. For the CNNMoney.com Comment Policy, click here.
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