U.S. stocks advanced the most in three weeks, helped by optimism about the retail sector and Fed Chairman Ben Bernanke’s defense of the central bank’s role in Bank of America/Merrill (NYSE:BAC) deal.  Stocks got a boost from Bed Bath and Beyond’s (NASDAQ:BBBY) improved quarterly earnings and a JC Penney (NYSE:JCP) upgrade.  The S&P 500 index jumped 2.1% and went into positive territory for the year.  Tech-heavy Nasdaq jumped 37 points, or 2.1%, and the Dow Jones Industrial Average matched S&P and Nasdaq’s advance.  Treasury prices went sharply higher after a successful $27 billion 7-year notes auction.  Volume on the NYSE remained light with only 1.2 billion shares exchanging hands and advancing shares outpaced declining issues by a five-to-one margin.  The Vix volatility index dropped to its lowest since September 11, easing 9.3% to 26.36.     

Today’s premarket futures suggest a mixed opening on news that Australian airliner Quantas Airways has canceled orders for 15 Boeing 787s, citing tough economic conditions. 

Lennar’s (NYSE:LEN) report on order improvements suggested the housing scenario is improving.  Gains were broad-based yesterday as basic material shares jumped 3.0%, healthcare and consumer services were up 2.7%, industrials rose 2.5%, and oil and gas advanced 2.3%.  Commodity-related shares also rose and healthcare issues advanced on news that Senate negotiators had restrained the price tag on Obama’s proposed healthcare reform bill to a target of $1 trillion over ten years.  DJIA components Merck (NYSE:MRK) rose 4.4% and Pfizer (NYSE:PFE) advanced 4.1%.  Technology issues advanced 2% after Micron (NYSE:MU) reported better-than-expected earnings and Palm’s (NASDAQ:PALM) loss was smaller-than-expected.

As consumer spending is being increasingly considered as the cornerstone of an economic recovery, a 14% jump in Bed Bath and Beyond’s (NASDAQ:BBBY) first quarter earnings and a JP Morgan (NYSE:JPM) upgrade of JC Penney (NYSE:JCP) to “overweight” with an increased price target of $33 from $28, provided a boost to retailers.  Shares of retailers advanced 3.8%, led by gains in Bed Bath and Beyond (NASDAQ:BBBY) of 9.5%, Saks (NYSE:SKS) of 6.7%, and JC Penney (NYSE:JCP) of 6.0%.

With the second-quarter scheduled to end early next week, most money managers have begun their window dressing by selling some equities on losses and buying this quarter’s some of best stocks.  That is likely to increase volatility in the coming sessions.

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