By Anna Hirtenstein and Alexander Osipovich 

U.S. stocks climbed amid a flurry of earnings reports and testimony by Janet Yellen in which she endorsed higher coronavirus relief spending.

The Dow Jones Industrial Average rose 126 points, or 0.4%, in midday trading. The S&P 500 advanced 0.6%, while the technology-heavy Nasdaq Composite was up 1%.

The gains came as U.S. markets reopened after a long holiday weekend and followed a decline in the three major indexes last week.

Earnings season kicked into high gear. Shares of Bank of America gained 1.5% after it reported a 22% profit decline in the fourth quarter, but still came ahead of analysts' forecasts. Goldman Sachs slumped 1.1% despite releasing earnings that beat expectations.

Netflix is expected to report results after markets close.

Major banks' earnings suggest they are "seeing the economy stabilize; their worst-case scenarios haven't been met," said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management. "Even if the virus is still with us, banks are seeing an uplift in the economy."

The strong markets of recent months have also boosted some investment banks' trading revenue, which was reflected in Goldman's earnings, Mr. Ramjee added.

Ms. Yellen backed major fiscal stimulus to help workers and businesses harmed by the coronavirus pandemic as she testified before the Senate Finance Committee, which will vote on her nomination for Treasury secretary. In prepared remarks, she said the U.S. risks a longer, more painful recession unless Congress approves more aid, and encouraged them to "act big" to shore up the recovery.

President-elect Joe Biden unveiled a plan for a $1.9 trillion fiscal stimulus package last week, which would include direct payments of $1,400 to most households and spending on vaccine distribution. Passing it through Congress is one of the first major tests for the incoming leader, who will be inaugurated Wednesday.

Ms. Yellen will be the "holder of the keys of unprecedented spending," said Ludovic Subran, chief economist at Allianz. "It will be reassuring for people to see she's very pragmatic in the way that she addresses the crisis, similarly to how she was in her role at the Fed."

Markets have begun the week on an optimistic note, as accelerated Covid-19 vaccine rollouts begin to offset concerns about the spread of the virus. Portfolio managers are focusing on whether vaccines will be able to cope with the mutations of the virus, and what that implies for the possibility of future lockdowns, said Sebastien Galy, a macro strategist at Nordea Asset Management.

Eight of the S&P 500's 11 sectors were in positive territory on Tuesday. Energy stocks posted the biggest gains, boosted by rising oil prices. Futures on Brent crude, the global oil benchmark, gained 2% to $55.83 a barrel on hopes that stimulus and vaccinations will boost energy demand.

Shares of General Motors rallied 9.8% after its driverless-car startup, Cruise, said it had entered into a technology partnership with Microsoft, which is also joining a group of companies set to invest more than $2 billion in Cruise. The stock is on course for a new high.

Shares of big tech companies climbed, after faltering last week. Facebook rose 2.1% and Apple wedged up 0.3%.

"There's a buy the dip mentality," said Mr. Galy. "Cynicism doesn't last long, it shows that equities can still rally significantly more."

In other corporate news, shares of laser maker Coherent surged 32% after it agreed to be acquired by Lumentum, a computer components firm. Lumentum stock fell 12%.

Overseas, the pan-continental Stoxx Europe 600 declined 0.2%. Jeep-owner Stellantis, the recently combined business of Fiat Chrysler and PSA Group, gained 2.6%, extending Monday's pop after it made its debut on French and Italian exchanges.

In Asia, most major benchmarks rose. Hong Kong's Hang Seng Index advanced 2.7% and Japan's Nikkei 225 index added 1.4%, led by shares of tech and car companies. The Shanghai Composite Index slipped 0.8%.

In U.S. bond markets, the yield on the benchmark 10-year Treasury note inched up to 1.102% from 1.097% Friday, with the market closed Monday for Martin Luther King Jr. Day.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com

(END) Dow Jones Newswires

January 19, 2021 12:44 ET (17:44 GMT)

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