Stocks Finish Higher After S&P 500, Dow Rally

U.S. stocks climbed for a second day as strong economic data helped ease investors’ concerns about the risks posed by Covid-19 and inflation.

Investors have been worried that the spread of the Omicron variant of Covid-19 and surging consumer prices could threaten the economic recovery. They welcomed fresh data showing confidence among U.S. consumers increased in December to a level above what economists had expected. Consumers’ concerns about inflation declined, the Conference Board said.

Separate data showed U.S. home sales rose in November as low mortgage-interest rates and a robust job market boosted demand. Sales of existing homes are on track for their strongest year since 2006.

“We’re starting to get a little more clarity as we head into year-end here that the economy does remain strong broadly speaking,” said JP Coviello, senior investment strategist at Bessemer Trust.

The S&P 500 rose 47.33 points, or 1%, to 4696.56, off 0.3% from its record close earlier this month. The Dow Jones Industrial Average gained 261.19 points, or 0.7%, to 35753.89. The tech-heavy Nasdaq Composite advanced 180.81 points, or 1.2%, to 15521.89.

Investors also embraced promising signals about the severity of illness caused by the Omicron variant of Covid-19.

Data from Scotland and South Africa suggest people who contract the Omicron variant are at lower risk of hospitalization than those infected with earlier strains of the virus. In the case of South Africa, researchers found that people infected with Omicron were 70% to 80% less likely to require hospital treatment than people infected with previous variants.

The Biden administration is preparing to distribute 500 million free at-home Covid-19 testing kits to Americans and send military doctors and nurses to hospitals this winter. U.S. health regulators on Wednesday authorized a pill from Pfizer that newly infected people can take at home to help them stay out of the hospital.

The emergence last month of the fast-spreading Omicron variant refocused investors’ attention on the risks that Covid-19 continues to hold for the economy. Renewed uncertainty about prospects for economic growth has injected volatility into the stock market. The S&P 500 has closed with a move larger than 1% on more than half the trading days since news of the variant first rattled the markets.

As the Christmas and New Year’s holidays approach, some investors expect that lighter trading could exacerbate market moves.

“It’s really such thin trading from here to the end of the year that really anything can happen,” said Mariann Montagne, portfolio manager at Gradient Investments.

Adding to nervousness in the market, investors are preparing for the Federal Reserve to raise interest rates in 2022. Accommodative monetary policy has helped fuel a powerful rally for stocks, sending the S&P 500 up 25% so far in 2021.

“Some investors just want to protect some of their profits, I would assume,” said Daniel Egger, chief investment officer at Switzerland-based St. Gotthard Fund Management. “This volatility could spill over into next year.”

Investors are preparing for the Federal Reserve to raise interest rates in 2022.

Photo: Spencer Platt/Getty Images

All 11 sectors of the S&P 500 rose, led by the consumer-discretionary group, which gained 1.7%. Tesla shares rose $70.34, or 7.5%, to $1,008.87. Royal Caribbean shares added $2.89, or 3.8%, to $79.46.

Shares of Paychex rose $6.98, or 5.5%, to $133.41 after the human-resources company said earnings rose in its second quarter on higher sales.

In commodity markets, Brent crude, the global oil benchmark, rose 1.8%.

The yield on the benchmark 10-year U.S. Treasury note fell to 1.457% from 1.487% Tuesday. Yields move in the opposite direction to bond prices.

Overseas, the pan-continental Stoxx Europe 600 rose 0.9%. In Asia, Hong Kong’s Hang Seng Index rose 0.6%, Japan’s Nikkei 225 rose 0.2% and the Shanghai Composite Index slipped 0.1%.

Write to Karen Langley at karen.langley@wsj.com and Joe Wallace at joe.wallace@wsj.com