Dow jumps 420 points to a record close in another intraday reversal, recovery plays lead rally

Wall Street points to higher open following Tuesday's turnaround
Wall Street points to higher open following Tuesday's turnaround

The stock market staged another big intraday comeback on Wednesday as investors continued to pile into names sensitive to an economic comeback, while looking past the risk of inflation and rising interest rates.

The Dow Jones Industrial Average wiped out a 110-point loss and climbed 424.51 points, or 1.4%, to a record closing high of 31,961.86, powered by strong performance in energy, industrials and financials. Boeing jumped 8.1%, while Chevron climbed 3.7%. Goldman Sachs and Visa both rose more than 3%. The S&P 500 advanced 1.1% to 3,925.40. At its session low, the broad equity benchmark fell 0.6%.

The tech-heavy Nasdaq Composite erased a 1.3% loss and closed 1% higher. Technology stocks sold off earlier in the day as the 10-year Treasury yield topped 1.4% to hit its highest level since February 2020. Higher interest rates could prompt investors to rotate out of high-flyers and into bonds, while they could hamstring growth companies, which benefited from the low-rate environment. Apple, Amazon and Facebook closed in the red but well off their lowest levels.

"Volatility along the way is to be expected, and higher rates will continue to drive more risk down into sectors and factors, but ... dips in the equity market are meant to be bought in this environment," Christopher Metli, a quantitative and derivative strategist at Morgan Stanley, said in a note.

Yields came off their highs after Federal Reserve Chair Jerome Powell continued to downplay the threat of inflation, saying it could take three years to reach the central bank's target consistently.

In Wednesday's testimony in front of the House of Representatives Financial Services Committee, Powell added that inflation could be volatile as the economy reopens and there is increased demand. But he does not expect inflation to run hot and said the central bank has the tools to fight it if it should.

The stock market posted a sharp reversal in the previous session after the Fed chief's dovish remarks eased fears about a change in monetary policy in the face of a pickup in inflation and interest rates. Powell said Tuesday that inflation was still "soft" and that the U.S. economy was "a long way from our employment and inflation goals."

The Dow and S&P 500 erased sharp losses to finish modestly higher Tuesday. The Nasdaq Composite, which was down nearly 4% at one point, finished with a loss of just 0.5%.

"Higher interest rates could moderate broad market gains, multiples should compress, and the last phase of early cycle themes could lead to Value exerting much-awaited leadership over Growth," Ed Clissold, chief U.S. strategist at Ned David Research, said in a note.

Tesla shares advanced 6.2% after Ark Invest's Cathie Wood bought a ton more of her biggest holding during Tuesday's selling. Wood bought more than $120 million worth of Tesla shares for the flagship Ark Innovation ETF, according to the firm's website.

Bitcoin, which some view as a barometer of speculation in financial markets, rebounded back above $50,000 on Wednesday after more buying of the cryptocurrency from Square.

On Wednesday, the Food and Drug Administration's staff endorsed Johnson & Johnson's single-shot Covid-19 vaccine for emergency use, bringing in a third vaccine to the U.S.