Technology stocks drove much of the gains, nudging the Nasdaq composite to an all-time high. The benchmark S&P 500 index briefly traded above 3,000 for the first time before pulling back to just below its most recent record high a week ago.
The market climbed early on after Fed Chairman Jerome Powell said that many Fed officials believe a weakening global economy and rising trade tensions have strengthened the case for a rate cut.
Powell's remarks, which he delivered as part of his semi-annual monetary report to Congress, allayed investors' concerns that an unexpectedly strong U.S. jobs report on Friday might give the Fed reason to stay put on interest rates.
"Investors are increasingly confident that the Fed will cut rates by a quarter-point at the end of the month, which most investors expected," said Kate Warne, chief investment strategist at Edward Jones. "This removed a little bit of the uncertainty there, and that's why we're seeing stocks move higher."
The S&P 500 index rose 13.44 points, or 0.5%, to 2,993.07. The index, which set three record highs last week, is now less than 0.1% below its all-time high set last Wednesday.
The Dow Jones Industrial Average gained 76.71 points, or 0.3%, to 26,860.20.
The Nasdaq climbed 60.80 points, or 0.7%, to 8,202.53, a record. It's previous record high was also set last Wednesday.
The Russell 2000 index of smaller company stocks rebounded from a brief slide, gaining 2.46 points, or 0.2%, to 1,565.05.
Major stock indexes in Europe closed mostly lower. The dollar fell and the price of gold rose.
The U.S. stock market rallied through much of June after the Fed first signaled that it might cut rates if necessary to shore up the U.S. economy.
Powell's testimony before the House Financial Services Committee on Wednesday came at a time when the U.S. economic landscape is mixed. While the job market appears resilient and consumer spending and home sales look solid, the economy is likely slowing. And the U.S. trade disputes have added uncertainty to the economic outlook.
In his prepared statement, Powell said that since Fed officials met last month, "uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook." Meanwhile, inflation has fallen farther from the Fed's target.
"It makes it so odd to think that we actually need to have this kind of stimulus from the Fed to continue this expansion," said Terry DuFrene, global investment specialist at J.P. Morgan Private Bank. "But the fact is you're starting to see some of those signals out there. The economy could start slowing and the Fed just wants to get ahead of that."
The Fed's benchmark rate currently stands in a range of 2.25% to 2.5% after the central bank raised rates four times last year. Many investors have put the odds of a rate cut this month at 100%.
A quarter-point cut in interest rates, which many investors expect, isn't likely to have a big impact on consumers' credit cards or mortgage rates. But it would reassure markets that the Fed would be open to further rate cuts if more signs of weakness in the global economy emerge, Warne said.
"Shifting from raising rates to lowering rates is a regime change," she said. "The second thing is we've already seen long-term interest rates come down partly in expectation of the rate cut."
Powell is due to appear before the Senate Banking Committee on Thursday.
Investors will have to wait until the end of the month to see what action the Fed takes on interest rates at its next meeting of policymakers. Before then, however, the market will turn its attention to the upcoming company earnings reporting season, which begins next week.
Companies have been lowering expectations for how much profit they made in the April-June quarter. Wall Street now projects that overall S&P 500 company earnings for the quarter fell 2.6% from a year earlier, according to FactSet. As recently as the end of March, earnings were forecast to be down only 0.5%.
This could be the first time in three years that S&P 500 companies report a back-to-back decline in overall earnings.
"We're going to see what's happening with companies' earnings, and that's where the uncertainty lies," said Tom Martin, senior portfolio manager with Globalt Investments.
Technology companies accounted for much of the market's gains Wednesday. Micron Technology climbed 3.7% and Western Digital rose 5%. Communications services stocks and consumer goods makers also rose. Take-Two Interactive added 1.8% and PepsiCo picked up 2%.
Energy stocks also rose as the price of U.S. crude oil climbed 4.5%. Chevron rose 1.7%.
Bond prices rose sharply, sending the yield in the 10-year Treasury note down to 2.06% from 2.10% shortly before Powell's remarks were released at 8:30 a.m. Eastern Time.
The drop in yields pulled bank shares lower. When bond yields decline they drive the interest rates that lenders charge for mortgages and other loans lower. Citizens Financial Group dropped 2.8%.
Industrials and materials stocks also lagged the market. Deere & Co. slid 1.6% and Corteva lost 1.8%.
Traders weighed earnings results from several companies.
Helen of Troy vaulted 11.15% after the company reported fiscal first-quarter results that topped Wall Street's forecasts. Its brands include Hydro Flask, Oxo, Vicks and Revlon.
Shares in WD-40 climbed 8.5% after the seller of lubricants delivered fiscal third-quarter earnings and revenue that exceeded analysts' expectations.
Levi Strauss slumped 12% after the jeans maker's latest quarterly report card showed its profit margins fell due to higher costs.
Energy futures closed broadly higher Wednesday.
Benchmark crude oil rose $2.60 to settle at $60.43 a barrel, the highest level since late May. Brent crude oil, the international standard, gained $2.85 to close at $67.01 a barrel. Wholesale gasoline added 8 cents to $2.01 per gallon. Heating oil climbed 8 cents to $1.99 per gallon. Natural gas picked up 1 cent to $2.44 per 1,000 cubic feet.
Gold rose $12.60 to $1,410.10 per ounce, silver added 8 cents to $15.15 per ounce and copper gained 7 cents to $2.69 per pound.
The dollar fell to 108.42 Japanese yen from 108.89 yen on Tuesday. The euro strengthened to $1.1253 from $1.1207.