Updated: 6:12 p.m. ET.

"Sequestration? What's that?" investors seemed to be saying Wednesday.

Stocks surged higher for a second straight day. They recovered all of their losses from Monday, and the Dow Jones industrials ($INDU) closed within about 90 points of their all-time closing high set in 2007.

In fact, the sectors of the market that seem most vulnerable to spending cuts set to go into effect on Friday were among the market's leaders: health care and defense.

Health care is one of the top-performing sectors this year. The Health Select Sector SPDR (XLV) exchange-traded fund is up 8.95% this year, trailing only the Consumer Staples Select Sector SPDR (XLP) ETF, which is up 9.1%.

The sector's gains came as the Dow finished with a gain of 175 points to 14,075. That's 89 points below its highest close: 14,164.453, set on Oct. 9, 2007. The Standard & Poor's 500 Index ($INX) was up 19 points to 1,516. It is within 49 points of its 2007 peak. The Nasdaq Composite Index ($COMPX) had gained 33 points to 3,162. It's still 10% below its all-time high, set in March 2000.

The Dow has gained 291 points in the last two days, easily recovering all of its 216-point decline on Monday.
Thanks to the rally, the major averages are now higher for February. The Dow is up 1.6%, with the S&P 500 up 1.2% and the Nasdaq up 0.6%. For the first two months of 2013, the Dow is up 7.4%, while the S&P 500 is sporting a 6.3% gain and the Nasdaq is up 4.7%.

Several factors have pushed the market and health-care issues higher:

The Federal Reserve is keeping rates low
The central bank is definitely is not pulling back on its policy of quantitative easing. That's the policy of selling short-term Treasury and mortgage-backed securities to keep long-term interest rates low.

Chairman Ben Bernanke defended the policy forcefully on Tuesday and Wednesday, even as Republican critics decried the policy as hurting the economy and leaving it vulnerable to inflationary pressures.

Sequestration is baked into markets
Investors know that it will be some time before sequestration -- the automatic spending cuts required under the 2011 budget deal -- begin to take a real bite out of the economy.

A month at the least, and maybe longer.

The big action will come as the White House and Congress negotiate over a continuing budget resolution. There's a chance House Republicans will try to force a partial shutdown of the government and possibly a default on U.S. debt.

The economic data have been decent
Pending-home sales jumped in January more than forecast, according to a report from the National Association of Realtors on Wednesday.

That added to data showing a recovering housing sector -- even if the sector is nowhere near at real recovery yet.

Orders for U.S. durable goods, excluding transportation equipment, climbed in January by the most in a year, That fact presumes companies are planning to expand capacity as they look beyond the federal budget impasse.

Health care is defensive, but 'growthy'
A lot of investors are buying into stocks out of fear they've missed the big rally that began in mid-November, says Alec Young, global equity strategist at Standard & Poor's Corp.

But they're a bit wary of going into more volatile sectors, like technology.

Health care works because it's relative stable: Everybody needs it. But Young added that health care is the "growthiest" of the S&P 500's four defensive sectors, which include telecommunications, utilities and consumer staples stocks. Health care includes biotechnology, medical equipment, health insurers, pharmaceutical makers and hospital operators.

The best performers in the 500 health care sector this year are Celgene (CELG), up 28.8%, and Boston Scientific (BSX), up 28.3%.

Wednesday's big gains were probably a big surprise to many investors. Many have been expecting the market to pull back from its recent highs if only the gains in 2013 have come so suddenly. On Feb. 27, 2012, the Dow was up 6.25%. In 2011, the gain for the blue chips was 5.6%.

The typical guess is that market is due a decline of 5% to 7% from current levels.

The rally was broad. Advancers were ahead of decliners 3-to-1 on the New York Stock Exchange and 2-to-1 on the Nasdaq.

But there was one noticeable laggard: Apple (AAPL), down $4.40 to $444.57. The price decline probably is a sign of unhappiness that Apple didn't offer shareholders a bigger dividend or stock buyback plan at Wednesday's annual meeting. The stock is down nearly 37% from its peak in September.

One shareholder at Wednesday's meeting complained to CEO Tim Cook about the stock price decline. "I don’t like it either,” Cook said. "The board doesn’t like it. The management team doesn’t like it."

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