Technology companies led a rally for stocks on Wall Street on Tuesday, as the market more than made up for a modest pullback to start the week.

The S&P 500 rose 1.1 per cent, with more than 70 per cent of stocks in the benchmark index notching gains. The Dow Jones Industrial Average rose 0.7 per cent and the tech-heavy Nasdaq composite climbed 2 per cent. It sets up the Australian sharemarket for gains, with futures at 5.02am AEDT pointing to a rise of 31 points, or 0.4 per cent, at the open.

The Australian dollar is also higher, rising to 74.66 US cents at 8.24am AEDT.

Bond yields rose sharply for the second day in a row, reflecting expectations of more aggressive interest rate hikes by the Federal Reserve as the central bank moves to squelch the highest inflation in decades. The yield on the 10-year Treasury climbed to 2.38 per cent from 2.30 per cent late Monday. The yield, which influences interest rates on mortgages and other consumer loans, was at 2.14 per cent late Friday.

The rise in bond yields and stocks comes a day after Federal Reserve Chair Jerome Powell said the central bank was prepared to move more aggressively in raising interest rates in its fight against inflation, if it needs to do so. Powell said the Fed would raise its benchmark short-term interest rate by a half-point at multiple Fed meetings, if necessary.

“Maybe investors are feeling that with the Fed taking more of a proactive approach early on it won’t have to slam on the brakes later,” said Sam Stovall, chief investment strategist at CFRA.

The S&P 500 rose 50.43 points to 4,511.61, and the Dow gained 254.47 points to 34,807.46. The Nasdaq rose 270.36 points to 14,108.82.

Smaller company stocks also bounced back. The Russell 2000 index added 22.41 points, or 1.1 per cent, to 2,088.34.

Concerns about rising inflation and slower economic growth have been weighing down stocks so far in 2022, but a rally last week helped trim some of the benchmark S&P 500’s losses for the year. The index is now down 5.3 per cent.