Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022. Reuters / BRENDAN MCDERMID

The Nasdaq surged up to 2% and the S&P and Dow jumped more than 1% on Tuesday, as signs of a de-escalation in tensions between Russia and Ukraine pushed up megacap growth names and banks, and helped investors shrug off hotter-than expected inflation data.

Russia said some of its military units were returning to their bases after exercises near Ukraine and stressed the need for continued dialogue on security. [nL8N2UQ28Q][nR4N2U200K]

Megacap growth stocks including Apple Inc, Google-owner Alphabet Inc, Inc, Microsoft Corp, Meta Platforms Inc and Tesla Inc rose between 1.1% and 4.3%.

The Philadelphia SE Semiconductor index climbed 3.8% after Intel Corp announced a $5.4 billion deal to buy Israeli chipmaker Tower Semiconductor.

Banks added 1.2%, while the small-cap Russell 2000 index gained 2.0%.

"This morning is strictly about the perception that Russia may be pulling back from an attack which is a complete turnaround from yesterday's fear that an attack was very imminent. So there's a relief rally," said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

But the easing in geopolitical tensions meant tighter oil supply and demand balance which pushed crude prices almost 4% down from a seven-year high. [O/R]

The S&P 500 energy index slid 1.5% to a two-week low, the sole decliner among the 11 major S&P sectors.

At 12:27 p.m. ET, the Dow Jones Industrial Average was up 349.70 points, or 1.01%, at 34,915.87, the S&P 500 was up 60.98 points, or 1.39%, at 4,462.65, and the Nasdaq Composite was up 217.79 points, or 1.58%, at 14,008.71.

The major indexes have had a rocky start to 2022, with the tech-heavy Nasdaq down almost 10% so far this year as geopolitical tensions rattled investors' sentiment already hit by worries over a hawkish Federal Reserve.

The CBOE Market Volatility index, a gauge for investor anxiety, fell back sharply after shooting up to its highest level in nearly three weeks in the previous session.

Data on Tuesday showed U.S. producer prices increased by the most in eight months in January, another sign that high inflation could persist through much of this year.

Markets are pricing a 61.8% chance of a 50 basis point hike and a 38.2% chance of a 0.25% hike at the Fed's March meeting as it attempts to curb the surge in inflation. Minutes from the central bank's January policy meeting are due on Wednesday.

Arista Networks jumped 7.1% after the cloud infrastructure supplier forecast current-quarter revenue above estimates.

Marriott International Inc added 4.0% after its fourth-quarter results topped expectations, as increasing vaccination rates and holiday-season traffic boosted occupancy rates across its hotels.

Other travel stocks battered by the pandemic, including those of carriers and cruise operators, also took heart, putting the S&P airlines index on track for its best session this year, up 5.0%.

Advancing issues outnumbered decliners by a 3.35-to-1 ratio on the NYSE and by a 4.01-to-1 ratio on the Nasdaq.

The S&P index recorded six new 52-week highs and three new lows, while the Nasdaq recorded 30 new highs and 51 new lows.