By Joe Wallace and Xie Yu
U.S. stocks edged higher Tuesday as investors faced a protracted economic recovery following the coronavirus lockdowns, as well as tensions with China and outbreaks of violence across American cities.
The Dow Jones Industrial Average rose 73 points, or 0.3%, and the S&P 500 rose 0.1%. The Nasdaq Composite was down less than 0.1%, and is less than 3% off its record high.
The S&P 500 has risen for five out of the past six sessions, boosted by data suggesting the downturn in the U.S. economy has bottomed and hopes that the coronavirus will be brought under control.
Still, the U.S. economy could take the better part of a decade to fully recover from the pandemic and related shutdowns, a U.S. budget agency said Monday. Output isn't expected to catch up to a previously forecast level until the fourth quarter of 2029, the nonpartisan Congressional Budget Office said.
"It's clear that we're not going to go back to the levels [of economic activity] we saw pre-Covid-19," said Sophie Huynh, a strategist at Société Générale. "It's impossible: we're living in a self-inflicted recession. We're going to start the post-Covid 19 world at the start of a new economic cycle."
Ms. Huynh said she expects a "swoosh-shaped" economic recovery that is beneficial for stocks and other riskier assets. Shares of companies that are sensitive to economic growth, such as energy producers, have rallied in recent sessions.
Cities across the U.S. faced another night of protests sparked by the death of George Floyd in Minneapolis last week. Some major metropolitan areas, including New York and Los Angeles, either issued or extended nighttime curfews. President Trump called for a tougher government response to the violent unrest, and said he is ordering thousands of armed soldiers and law enforcement officers to the nation's capital.
The unrest has added to challenges faced by businesses seeking to get back up and running following lockdowns designed to stem the coronavirus pandemic. Macy's delayed the reopening of some stores shut by coronavirus. Apple stores that had recently unlocked their doors were boarded back up.
Investors have largely shrugged off the impact of the protests on earnings and the U.S. economy. However, public-health and government officials worry ongoing protests could result in another jump in coronavirus cases in the coming weeks.
"The one thing the market would be very unforgiving of is the case count in the U.S. starting to go up again," said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.
International stocks gained ground, extending a recent rally fueled by hopes of a rebound in the global economy. The Stoxx Europe 600 advanced 1.5%, led by shares in auto and auto-part makers.
Germany's DAX index surged 3.7% following a public holiday Monday, with big gains for shares in carmakers.
"There's a lot of positivity starting to build up around Europe," said James McCormick, head of desk strategy at NatWest Markets, pointing to a decline in coronavirus cases and relaxation of lockdown measures on the continent.
German stocks received an extra boost from reports that Chancellor Angela Merkel's ruling coalition is holding talks about delivering a second spending package to boost the country's economy, Mr. McCormick added.
Japan's Nikkei 225 closed 1.2% higher while Hong Kong's Hang Seng Index rose 1.1%.
"The equity market has been pricing in a smooth recovery of the economy, although it might be too optimistic while overlooking some potential risks," said Anthony Chan, chief Asia investment strategist at Union Bancaire Privée. Those hazards include tensions between the U.S. and China and the possibility of new coronavirus outbreaks, which could lead to a resumption of lockdown measures, Mr. Chan said.
Among individual names, Western Union rose 12% after Bloomberg News reported that the money-transfer provider was seeking to buy MoneyGram International. Shares of Host Hotels & Resorts, which said it expects to reopen 11 more hotels this month, rose 1.6%.
In bond markets, the yield on the 10-year U.S. Treasury note rose to 0.680%, from 0.669% on Monday.
Brent crude futures, the benchmark for international oil markets, rose 1.7% to $38.88 a barrel. U.S. crude futures rose 1.2% to $35.85. An alliance of oil-producing nations, led by Saudi Arabia and Russia, is close to a deal that would extend output cuts through Sept. 1, according to delegates. The Organization of the Petroleum Exporting Countries has agreed to move a planned conference call to discuss future output curbs to Thursday, they said.
Write to Joe Wallace at Joe.Wallace@wsj.com and Xie Yu at Yu.Xie@wsj.com