The 30-stock Dow climbed 160.35 points, or 0.6%, to close at 28,492.27. Earlier in the session, the average turned positive for 2020. The S&P 500 gained 0.2% to close at 3,484.55 and briefly topped 3,500 for the first time. The Nasdaq Composite slid 0.3% to 11,625.34.
Stocks got a boost to start the session after Fed Chairman Jerome Powell said the central bank formally agreed to a policy of "average inflation targeting." In other words, the central bank will let inflation run "moderately" above its 2% goal for "some time."
"This is incredible," said CNBC's Jim Cramer on the announcement. Powell basically said "'we're going to let things run. And we're not going to be a part of the equation until the economy actually does even better than we think.'"
The central bank has for years tried to keep inflation at 2%, a rate of price increase that policymakers consider both manageable and indicative of a healthy economy. But ever since the financial crisis, inflation in the U.S. has more often than not lagged the Fed's target.
Powell also hinted that unemployment data can stay lower for longer before the Fed starts thinking about raising rates. This led to a decline in short-term yields and gains in long-term yields.
"Today was a pretty meaningful day," said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities. This is Powell saying "'we don't want the job market strong for just Wall Street bankers and people that are doing really well. We want it strong for the people that need it the most in this particular time.'"
Bank stocks rose broadly. Citigroup gained 1.7%. JPMorgan Chase, Bank of America and Wells Fargo were all up at least 1.9%. The benchmark 10-year rate climbed to 0.74% and the 30-year bond yield advanced to 1.501%.
Those bank gains were offset as Big Tech shares fell across the board. Facebook and Netflix dropped 3.5% and 3.9%, respectively. Amazon, Alphabet and Apple were all down more than 0.9%. Microsoft bucked the negative trend in tech, rising nearly 2.5%.
Victoria Fernandez, chief market strategist at Crossmark Global Investments, noted some of Thursday's gyrations may be due to investors rotating out of tech and into other parts of the stock market. "We've actually been doing that with our own portfolios," Fernandez said. "We're trimming some of those growth names that have done so well this year and reallocating to more staple names within the portfolio."
The Cboe Volatility Index (VIX), widely considered to be the best "fear gauge" on Wall Street, rose by 1.12 points to 24.39. The VIX also hit its highest level since Aug. 3.
Investors pored through fresh economic data to gauge the health of the economy. The Labor Department said Wednesday the number of Americans who filed for unemployment benefits for the first time totaled 1 million last week, in line with expectations. It marked the second consecutive week that weekly jobless claims tallied more than 1 million.
"The claims data this week is encouraging," said Thomas Simons, money market economist at Jefferies, in a note. "We were concerned that the restoration of $400 of the $600 enhanced benefit that had expired at the beginning of August was leading to more claims being filed again as people chose to receive unemployment insurance rather than work if they had flexibility in their situations."
"The decline this week suggests this is not the case," Simons said.
Meanwhile, second-quarter GDP was revised to a 31.7% decline, versus a 32.5% drop estimated. The initial reading on July 30 showed a 32.9% fall in economic activity. While the latest reading is slightly better, it still marks the largest quarterly plunge on record.
The prospect of continued stimulative policy could help push the major market indexes to new record highs, a feat both the Nasdaq Composite and S&P 500 clinched on Wednesday.
— CNBC's Patti Domm contributed to this report.