Stocks Bounce Back as VIX Falls Further

Stocks shot out of the gate Wednesday as banks rallied after Bank of America moved to boost capital and investors were hopeful that the worst may be over for the economy.

The Dow Jones Industrial Average was up more than 100 points, or 1 percent. The S&P 500 and Nasdaq also gained more than 1 percent, with the Nasdaq up nearly 2 percent.

The CBOE Volatility Index, which is a closely watched gauge of investor fear, continued to slide, falling below 27, after finishing below 30 on Tuesday, the first time its breached that level since Lehman Brothers collapsed in September.

Mortgage applications rose last week, reflecting an increase in demand for home refinancing loans as interest rates declined.

“These green shoots as people have talked about could see the S&P get to 1,000 (points) or maybe 1,050 (over the summer) … the risk rally can continue,” Benjamin Pedley, managing director, investment strategist from LGT Investment Management, told CNBC.

Crude oil ticked slightly higher to more than $60.60 a barrel after a report showed crude inventories fell by 2.1 million barrels last week, more than double the 700,000 drop expected.

Bank of America was the biggest percentage gainer on the Dow after the bank late Tuesday priced 825 million shares at $10 each. The company is scrambling for cash after the government’s stress tests found it short by some $33.9 billion.

Other banks were also higher, including Citigroup and JPMorgan, Wells Fargo and Fifth Third.

General Electric shares rose nearly 4 percent after CEO Jeff Immelt said there are a number of signs that show the economy is stabilizing, including the fact that demand for commercial lending among small businesses has increased significantly. GE is the parent of CNBC.

Tech stocks were mostly higher but Hewlett-Packard skidded more than 4 percent after the company delivered a gloomy outlook and said it was slashing its workforce by another 2 percent.

Investors will look to minutes from the last Federal Open Market Committee meeting for clues on Fed policy over interest rates and quantitative easing. The minutes will be released at 2 pm New York time.

Investors will also be watching the Congressional testimony from Treasury Secretary Timothy Geithner, who will speak before a Senate panel on oversight of the TARP program. 

Retail stocks also rallied after Target beat earnings expectations as the discount retailer kept a tight control on inventory and expenses, and its credit-card business was profitable. Target lost out to rival Wal-Mart at the beginning of the recession but has made a focused effort on promoting consumer staples such as food and pharmacy items and on low prices.

But shares of BJ's Wholesale skidded after the wholesale club reported its earnings rose but sales rose just 0.2 percent amid the toll of falling gasoline prices. Still, BJs raised its 2009 outlook.

Tractor maker Deere reported its profit fell 38 percent and slashed its outlook as worries about the recession have crimped demand for farm equipment.

Toll Brothers reported its revenue tumbled 51 percent but new orders were up, reflecting seasonal demand.

Still to Come:

WEDNESDAY: Weekly oil inventories; Fed minutes; Fed's Plosser speaks
THURSDAY: Weekly jobless claims; Philly Fed report; leading indicators; Fed's Plosser speaks; Earnings from Gamestop, Hormel, Gap and Aeropostale
FRIDAY: Earnings from Campbell Soup

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