Dow jumps 480 points, S&P 500 closes at record as market shakes off coronavirus fears

Cashin: Whenever a market goes parabolic, you know an end will be near
Cashin: Whenever a market goes parabolic, you know an end will be near

Stocks rose for a third straight day on Wednesday, pushing the S&P 500 back to levels hit prior to the coronavirus scare. 

The broad index closed 1.1% higher at 3,334.69, led by strong gains in the energy, financials and health care sectors. That gain drove the S&P 500 to a record closing high. It also erased its losses stemming from fears over the coronavirus and came within a whisker of hitting an all-time intraday high.

At one point, the S&P 500 was down as much as 3.1% because of worries around the fast-spreading virus. The index has also seen volatility spike amid the virus fears, posting five moves of at least 1% over the past two weeks. Prior to that, the S&P 500 had gone 74 sessions without a move of that magnitude. 

"There is still uncertainty around the coronavirus, but this doesn't seem to be the open-ended risk it was last week," said Dave Lafferty, chief market strategist at Natixis Investment Managers.

The Dow Jones Industrial Average closed 483.22 points higher, or 1.7%, at 29,290.85. UnitedHealth and IBM rose more than 4% each to lead the Dow higher. Wednesday's gains put the 30-stock average within striking distance of reaching its pre-coronavirus levels. 

Confirmed coronavirus cases in China are near 25,000, claiming the lives of 490 people. President Donald Trump said during Tuesday's State of the Union address that the U.S. is "working closely" with the Chinese government to contain the virus.

"We think the number of new reported cases will be a critical signpost," said Niall MacLeod, a strategist at UBS, in a note. He added equity markets bottomed from the SARS scare in 2003 after the number of new cases began to slow.

Traders work on the floor at the New York Stock Exchange.
Brendan McDermid | Reuters

Earlier on Wednesday, Reuters said a Chinese TV media outlet had reported that a research team at Zhejiang University had found an effective drug to treat people with the new coronavirus. The news agency, citing traders, suggested this was a reason for the move higher in stocks.

However, the World Health Organization said in a statement: "There are no known effective therapeutics against this 2019-nCoV."

The Nasdaq Composite lagged the Dow and S&P 500, closing 0.4% higher at 9,508.68 after rallying more than 1% earlier in the day. Tesla shares declined more than 17%, notching their second-worst day ever. Tesla's decline came after Wall Street analysts called for caution around the high-flying stock. Tesla is up more than 80% for 2020 even with Wednesday's drop. 

Barclays auto analyst Brian Johnson — who is forecasting a 65% drop in Tesla — said in a note "the recent price action brings to mind NASDAQ c. 1999." He also said Tesla is "fundamentally overvalued."

Analysts at Canaccord Genuity and New Street Research downgraded the stock, denting sentiment around it, along with news of planned Model 3 delivery delays in China due to the coronavirus outbreak. 

The broader market also got a boost after ADP and Moody's Analytics said U.S. private payrolls rose by 291,000 in January. That's the biggest monthly payrolls gain in nearly five years.

The report from ADP and Moody's Analytics is often seen as a preview to the government's official monthly jobs report, which is set for release Friday morning.

"Since today's data came in well above market expectations, this release is likely to inspire other forecasters to revise their forecasts," said Ward McCarthy, chief financial economist at Jefferies.

Stocks rallied on Tuesday as the market recovered from a huge sell-off on Friday, with the Dow closing 407.82 points higher. For the week, the 30-stock average was up more than 3%.

—CNBC's Elliot Smith contributed to this report.