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The Dow Jones Industrials (INDEX: ^DJI ) notched its best day of the year Tuesday, soaring 218 points to levels not seen since the first days of 2008, and all three major indexes shot up nearly 2%. The Nasdaq crossed the 3,000 hurdle, finishing at an 11-year high, and the S&P 500 checked in just shy of the 1,400 mark.
All 30 Dow components rose with the banks moving the most. Bank of America (NYSE: BAC ) jumped over 6% to $8.49, and JPMorgan Chase (NYSE: JPM ) was up 7% to close at $43.39, sending the market higher on late news that it would raise its quarterly dividend to $0.30 from a quarter and buy back up to $12 billion worth of shares. The Wall Street behemoth became the first to pass the Federal Reserve's stress test to determine if the bank could survive another financial crisis, and thus received permission to return more capital to shareholders.
In an announcement after trading hours, the Fed said 15 of the 19 institutions it examined passed the stress test. Citigroup, Ally Financial, SunTrust, and MetLife were the four that failed, and all but Ally dropped about 4% in after-hours trading.
Of the non-financial Dow components, Alcoa (NYSE: AA ) was the biggest winner on the day, up 4.5% on news that the chairman of competitor Rusal was resigning following a dispute over the company's strategic direction. Viktor Vekselberg, the departing chairman of the Russian metals giant, underscored his company's fall from grace in an open resignation letter, citing Rusal's excessive debt and involvement in a number of lawsuits. As a major competitor, Alcoa figures to benefit from any problems at Rusal. Fellow Dow cyclical Caterpillar also beat the market, rising 4%.
Before JPMorgan Chase's big announcement, a Census Bureau report showing retail sales growth at a five-month high got the market started off in the black. Sales in the sector grew 1.1% from the previous month and 6.5% versus February 2011 totals. Car sales were a big factor, increasing 1.6% from a month ago, their fastest pace in four years. Interestingly, Dow retailers Home Depot and Wal-Mart were among Tuesday's poorer performers.
In other market-moving news, President Obama joined with the EU and Japan to ask the World Trade Organization to force China to ease its rare-earth element export restrictions. China controls 95% of the world's rare-earth minerals, which have become increasingly vital commodities in the modern world, with a number of high-tech applications such as wind turbines, smartphones, and electric car batteries depending on them. The move sent shares of rare-earth miners Molycorp (NYSE: MCP ) , Avalon Rare Metals, and Rare Element Resources up nearly 10% in high-volume, midday trading, though Avalon and Molycorp gave back most of their gains to finish the day up only about 3%.
With many of the Wall Street banks getting a key stamp of approval from the Fed, now could be a good time to invest in financials. The banking sector still looks undervalued to some, including Warren Buffett, who said, "It doesn't make any sense. If I had the choice of buying or selling certain banks today, I'd be buying." Our experts have found a few smaller banks that look like hidden gems at today's prices. Read all about them and why they're such a good investment today in the Fool's new free report, “The Stocks the Smartest Investors Are Buying." You can get your copy right here.