Stocks extend gains on Tuesday with the Dow now up more than 500 points

The Dow Jones Industrial Average rebounded Tuesday as Wall Street bet on better-than-expected earnings following a solid report from Johnson & Johnson.

The Dow jumped 509 points, or 1.64%. The S&P 500 ticked up 1.91%, and the Nasdaq Composite rose 2.13%.

Those moves followed the release of the latest corporate earnings reports that showed businesses working through greater economic pressures, including rising inflation, even as recession fears persist. 

"Both investors and the companies were expecting hot inflation, so companies talking about hot inflation having happened in that second quarter was not a surprise at all," Kim Forrest, founder and chief investment officer at Bokeh Capital Partners. "What was a surprise was that they were able to manage through it well."

Johnson & Johnson shares ticked higher after the company reported better-than-expected quarterly earnings and revenue, although the pharmaceutical giant also cut its full-year revenue and profit guidance.

Hasbro shares climbed more than 2% after the toymaker's earnings per share beat a Refinitiv forecast, though its revenue for the previous quarter came in a tad below expectations.

Meanwhile, IBM shares fell more than 6%, after the tech company lowered its forecast for cash flow, even while reporting earnings that beat Wall Street's earnings and revenue estimates.

Bank stocks outperformed on Tuesday. Shares of Goldman Sachs jumped more than 3% following a strong earnings report Monday from the investment bank. Bank of America climbed nearly 3%, and Wells Fargo rose 2%.

Google was up more than 2% following a 20-for-1 stock split that took place Monday.

Shares of Netflix are 2% higher ahead of its earnings report that is scheduled Tuesday after the close. Later in the week, Tesla, United Airlines, American Airlines, Snap, Twitter and Verizon are among those scheduled to report.

So far, roughly 9% of S&P 500 companies have reported calendar second-quarter earnings. Of those companies, about two-thirds have beaten analyst expectations, FactSet data shows.

Wall Street is betting that stocks have mostly priced in a downturn after their sharp declines this year, though some market participants continued to advise investors to hold on to some cash and prepare for more losses ahead.

"[While] I acknowledge sentiment is bad and we could see a large, tactical rally, I am currently more concerned about protecting downside than missing upside, in the aggregate," Wedbush analyst Kevin Merritt wrote in a Tuesday note.

On Monday, the Dow shed more than 200 points to end the day in the red, reversing a morning rally fueled by solid earnings reports from Goldman Sachs and Bank of America. Oil broke above $100 a barrel, and bitcoin surged to the highest levels seen since mid-June.

Late in Monday's session, stocks were dragged down on a Bloomberg report that Apple would slow hiring and spending on growth next year to prepare for a potential economic downturn. Shares of the iPhone maker ended the day about 2.1% lower.