INFLATION is low, earnings are high, investors are happy. Stocks shot higher yesterday, giving the market its biggest gain in a month. Results at Mattel, Goldman Sachs, and Johnson & Johnson were all above expectations.

It was the second day of broad gains following a down week last week. Investors had been worried headed into the third-quarter earnings season that corporate profits wouldn’t be good enough to justify the run-up in stocks in recent months. While earnings haven’t been out-of-the-park great, they haven’t been as bad as some had feared.

Also yesterday, the Labour Department said consumer prices rose just 0.1 per cent last month, not counting food and energy costs. And gasoline prices have come down since then. Low inflation leaves consumers with more money to spend, and leaves the Federal Reserve free to continue its efforts to boost the economy.

In addition, an index of homebuilder sentiment came in at its highest level since 2006, suggesting that the construction industry is making a comeback.

“The picture of the economy is one that’s still proving to be resilient to a lot of the problems that investors are worried about,” said Gary Thayer, chief macro strategist for Wells Fargo Advisors.

The Dow Jones industrial average rose 127.55 points to close at 13,551.78, its biggest gain since September 13.

The Standard & Poor’s 500 index rose 14.79 points to 1,454.92, and the Nasdaq composite rose 36.99 to 3,101.17.

The gains were broad, with nine out of 10 industry groups in the S&P 500 index rising. Telecom stocks had a tiny decline. Materials stocks rose 2.4 per cent.

Mattel jumped five per cent after reporting that brisk sales of American Girl dolls and Fisher-Price toys sent the company’s profit well above analysts’ forecasts. The stock gained US$1.78 to US$37.20.

Johnson & Johnson rose 95 cents to US$69.55 after revenues came in ahead of Wall Street’s forecasts.

Among companies reporting after the closing bell, IBM fell in after-hours trading after its revenues came up short of Wall Street’s forecasts. Intel fell after its earnings and revenue came in below forecasts.

Other stocks making big moves included:

Apple rose US$15.03, or 2.4 per cent, to US$649.79 after the company sent out invitations for an event next Tuesday where it is expected to announce a smaller iPad.

Citigroup rose 59 cents, US$37.25, following the sudden departure of CEO Vikram Pandit, who had steered the bank through the 2008 financial crisis. Pandit, who is also stepping down from the company’s board, is being replaced by longtime Citi executive Michael Corbat.

A123 Systems, a maker of electric batteries for vehicles, put its US operations into Chapter 11 bankruptcy protection and said its automotive assets will be acquired by Johnson Controls for US$125 million. A123’s stock plunged 18 cents to six cents.

The yield on the benchmark 10-year Treasury note rose to 1.72 per cent from 1.67 per cent late Monday.

European markets also rose. Benchmark indexes were up 1.6 per cent in Germany, 2.4 per cent in France and 1.1 per cent in Britain.

The euro rose to almost US$1.30 against the dollar from US$1.29 the day before.