The technology sector got a further lift from indications of improving semiconductor industry trends, while analyst upgrades of General Electric and International Paper and positive comments on McDonald's helped offset weakness at Wal-Mart and a management shake-up at Boeing.
Seasonal factors were also a positive, as December is historically a strong month for stocks. Since 1950, the month is the year's best for the S&P 500 Index -- which happened to reach a new yearly high in intraday trading -- and the second best for the Dow Jones Industrials Average, according to the Stock Trader's Almanac.
"The holiday season is certainly kicking in, in both shopping and the market," said Jefferies & Co. chief market analyst Art Hogan.
Finance experts say tax cuts have put money in Americans' pockets and predict they're going to keep spending it.
"I think we've got another six to nine months of strong growth before the impact of those tax cuts start to wear away," economist David Wyss told CBS News Correspondent Anthony Mason.
Investors returned to the market with enthusiasm following a holiday week of lighter trading, and the manufacturing report from the Institute for Supply Management contributed to their zeal, said Todd Leone, managing director of equity trading at SG Cowen Securities.
"I think a lot of people were off last week, so they're coming in and buying today," Leone said. "Construction spending was good, but these ISM numbers have really pushed the market up."
The Dow was up 116.59, or 1.19 percent, at 9,899.05, following a gain last week of 1.6 percent. The last time the index of 30 actively traded blue chip stocks closed higher was May 31, 2002, when it ended the day at 9,925.30.
The broader market gauges were also higher. The Nasdaq composite index was at its highest point in more than a year, up 29.56, or 1.51 percent, at 1,989.82, following a weekly gain of 3.5 percent. The tech-heavy index last closed higher Nov. 17, 2002, at 1,985.82.
The Standard & Poor's 500 index was also hit a new high, up 11.91, or 1.13 percent, at 1,070.11, after gaining 1.5 percent last week. The S&P last closed higher on May 28, 2001, at 1,074.55.
"The last two months of the year are traditionally a strong seasonal period for the market, and we've had strong 10 months going into it," said Steven Goldman, chief market strategist at Weeden & Co. in Greenwich, Conn. "All in all the markets are moving to new recovery highs here."
Two economic reports cheered investors:
An index reading above 50 indicates expansion; one below 50 indicates that manufacturing activity is contracting. From March through June, the manufacturing index was below 50.
Holiday sales were also a plus. ShopperTrak, which combines Commerce Department data with figures from 30,000 store traffic monitors across the U.S., said "Black Friday" sales rose 4.8 percent over last year to $7.2 billion.
"[The number] is strong, especially against a year ago, which rose at 6.8 percent," said ShopperTrak's Michael Niemira. "The fact that consumers were out there and spending is certainly a good sign for the holiday season as a whole."
Visa USA said total U.S. spending on Visa credit and debit cards topped $6.5 billion during the Friday and Saturday following Thanksgiving, an increase of 12 percent over the same period a year ago.
Dow member Wal-Mart, the world's biggest retailer, said it booked a record $1.52 billion in sales on the Friday after Thanksgiving, up from last year's $1.43 billion.