The Fed's new strategy sent Treasury yields higher, which gave a lift to interest rate-sensitive financials.
"The steepening of the yield curve is a welcome addition, particularly on a day where the market is rising," said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts.
The financial sector provided the biggest boost to the S&P 500 and the Dow, pushing the former to its fifth straight record closing high and the latter within a hair's breadth of reclaiming positive territory for the year so far.
The Dow remains more than 3.6% below its record high reached in February.
Stocks lost steam late in the session following House of Representatives Speaker Nancy Pelosi issued a statement saying Democrats and Republicans remain far apart over the next stimulus bill.
Declines in market-leading momentum stocks capped gains in the S&P and Dow and held the Nasdaq in the red.
"There seems to be a bit of rotation with regards to the news today and how the market has responded, giving the markets a value bump," Keator added.
Shares of Abbott Laboratories jumped 7.8% after the company won U.S. approval to market a cheap, portable, rapid COVID-19 antigen test, which could be a step toward containing the pandemic that sent the U.S. economy spiraling into recession.
Economic recovery was forefront in Fed Chairman Jerome Powell's remarks made as part of the Kansas City Fed's virtual Jackson Hole symposium. In the speech Powell outlined the central bank's aggressive new strategy to support the economy by lifting inflation and returning the economy to full employment.
"The statement by Powell in some regards is telegraphing a continued dovish stance for quite some time," Keator said.
But with last week's initial jobless claims stubbornly hovering above the 1 million mark, according to the Labor Department, a return to full employment currently appears to be a long haul.
The Dow Jones Industrial Average rose 160.35 points, or 0.57%, to 28,492.27, the S&P 500 gained 5.82 points, or 0.17%, to 3,484.55 and the Nasdaq Composite dropped 39.72 points, or 0.34%, to 11,625.34.
Of the 11 major sectors in the S&P 500, financials enjoyed the biggest percentage gain while communications services, weighed down by Netflix Inc and Facebook Inc, lagged.
Shares of Walmart Inc and Microsoft Corp rose 4.5% and 2.5%, respectively after announcing a joint bid for TikTok's U.S. assets.
Boeing Co rose 1.3% after the European Union Aviation Safety Agency announced plans to begin flight tests of its grounded 737 MAX plane.
Cosmetics maker Coty Inc plunged 8.1% after retail closures and weak demand led to a bigger-than-expected quarterly loss.
Advancing issues outnumbered declining ones on the NYSE by a 1.16-to-1 ratio; on Nasdaq, a 1.18-to-1 ratio favored decliners.
The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 62 new highs and 27 new lows.
Volume on U.S. exchanges was 9.16 billion shares, compared with the 9.37 billion average over the last 20 trading days.
By Stephen Culp