By Ryan Vlastelica
NEW YORK (Reuters) - U.S. stocks rose on Tuesday, erasing much of the previous session's steep drop, as December retail sales rose more than expected and investors digested earnings from major financial firms.
The S&P 500 suffered its biggest daily decline since November 7 on Monday as investors exercised caution amid a ream of negative corporate earnings outlooks that suggested the market may be vulnerable with indexes near record levels.
Retail sales increased 0.7 percent in December, excluding automobiles, gasoline, building materials and food services, a rise that was bigger than anticipated. It was the first major economic indicator since Friday's payroll report, which was sharply under expectations.
"The retail sales are painting a better economic backdrop than payrolls did, and investors are using recent weakness as an opportunity to buy," said Mike Gibbs, co-head of the equity advisory group at Raymond James in Memphis, Tennessee.
The S&P's forward price-to-earnings ratio is the highest in nearly seven years, another sign investors may be more selective as the U.S. Federal Reserve begins to slow its stimulus, which contributed to massive gains in 2013.
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Both JPMorgan Chase & Co and Wells Fargo & Co posted earnings that beat expectations, though upside was limited with Wells near all-time highs and JPMorgan at its highest since 2000. JPMorgan gained 0.4 percent to $57.95 while Wells was up 0.3 percent at $45.70. The S&P financial index <.SPSY> advanced 0.8 percent.
"Financials are putting up strong numbers, and we should be able to put in a decent print this quarter, especially since expectations have been trending down," said Gibbs, who helps oversee about $450 billion in assets.
The Dow Jones industrial average was up 94.72 points, or 0.58 percent, at 16,352.66. The Standard & Poor's 500 Index was up 17.76 points, or 0.98 percent, at 1,836.96. The Nasdaq Composite Index was up 63.88 points, or 1.55 percent, at 4,177.19.
Intel Corp shares jumped 3.8 percent to $26.47, helping to boost the Nasdaq, after JPMorgan upgraded the stock to "overweight" from "neutral."
With 5 percent of the S&P 500 companies having reported, 53.8 percent have beaten earnings expectations, according to Thomson Reuters data, below the 63 percent historical average. About 62 percent have beaten on revenue, above the long-term 55 percent average.
Bank of America Corp , Citigroup , Goldman Sachs and Morgan Stanley are scheduled to post results later in the week. General Electric Co and Intel are also on tap.
In merger news after the market closed on Monday, Google Inc agreed to buy smart thermostat maker Nest Labs Inc for $3.2 billion. [ID:nL2N0KN2EE] Charter Communications Inc offered to buy Time Warner Cable for $37.3 billion. [ID:nL2N0KN234]
Shares of Google rose 1.7 percent to $1,141.97, while Time Warner Cable rose 2.8 percent to $136.06 and Charter added 1 percent to $135.55.
Both GameStop Corp and Stratasys Ltd slumped after giving outlooks that were weaker than expected. GameStop lost 18 percent to $37.01 as the S&P's worst performer, while 3D printer maker Stratasys slid 9.3 percent to $117.96.
In contrast, Intuitive Surgical advanced 9.4 percent to $430.23 as the S&P's best performer after the surgical equipment maker gave a strong fourth-quarter outlook.
(Editing by Bernadette Baum and Nick Zieminski)