The major averages gave up sharp gains on Wednesday after a summary from the Federal Reserve's January meeting sent the benchmark 10-year U.S. note yield to its highest level in four years. The Dow closed 166 points lower, having risen as much as 303 points. On Thursday, the 10-year yield traded off its four-year high at 2.921 percent.
"The minutes convey a clear sense that inflation is more on their minds than the FOMC statement indicated," Steve Blitz, chief U.S. economist at TS Lombard, said in a note. "The minutes gave readers conviction that only a sea change will stay the Fed from four 25bp rate rises in 2018. One might think this trajectory puts the Fed behind economic activity, but market odds-setters still very much lag the Fed, pricing in only about a 25% chance of four hikes this year."
Investors got more news out of the Fed on Thursday. Atlanta Fed President Raphael Bostic said things continue to "look up" for the U.S. economy. St. Louis Fed President James Bullard, meanwhile, told CNBC's "Squawk Box" that too many rate hikes could slow down the economy too much. New York Fed President William Dudley delivered prepared remarks, but did not address monetary policy.
Earlier this month, stocks suffered their first 10 percent pullback since early 2016. The Dow, S&P 500 and Nasdaq all closed in correction territory on Feb. 8. The move lower was sparked, in part, by fears of rising inflation and higher interest rates.
"If interest rates move higher slowly, ... then I think the market will be calm," said Tim Courtney, chief investment officer at Exencial Wealth Advisors. "But if they go up quickly, we could see another wild ride" in the market.
But the major averages were quick to recover some of those losses. As of Wednesday's close, the Nasdaq had regained about 62 percent of the losses suffered, while the S&P 500 and Dow had jumped about 40 percent and 35 percent.
But Randy Frederick, vice president of trading and derivatives at Charles Schwab, said he thinks the market may have recovered a little too fast from its lows. "When you recover that fast, that usually opens the door for another downturn," he said.
In corporate news, Chesapeake Energy shares jumped 21.7 percent after the company reported better-than-expected quarterly earnings. The stock was also the best performer in the S&P 500.
Meanwhile, Roku's stock shed 17.7 percent after the streaming company issued weaker-than-expected revenue guidance for the current quarter.
United Technologies shares rose 3.3 percent after CEO Greg Hayes said the company is thinking of splitting up key parts of its business.