Major averages rebounded Tuesday as investors stepped in to buy the dip from the Dow Jones Industrial Average's worst day in eight months.
The comeback rally gained steam steadily through the session as a bounce in Treasury yields soothed some concerns that a Covid resurgence would slow down the economic recovery. As the 10-year yield climbed back above 1.20%, the run in stocks increased.
The Dow Jones Industrial Average rose 549.95 points, or 1.6%, to 34,511.99, following its 725 point-decline Monday. It was the biggest jump for the Dow in more than a month. The S&P 500 climbed 1.52% to 4,323.06 and the Nasdaq Composite added 1.57% to 14,498.88. The small-cap benchmark Russell 2000 index saw the biggest rebound with a 3% gain.
Many of the stocks that were hit the hardest on Monday, on concerns about Covid-19's delta variant, regained their losses Tuesday. Airlines and cruise companies led the rebound. American Airlines and Delta Air Lines, which lost 4% in the sell-off, added 8% and 5%, respectively, on Tuesday. Royal Caribbean gained more than 7%, after falling 4% on Monday.
Bank shares bounced back too as bond yields climbed higher. JPMorgan shares rose 1.8% and Bank of America gained 2%. Regional banks led the financials sector, with Zions Bancorp and Regions Financial gaining 5% and 4%, respectively. Regional banks tend to trade closely along with the 10-year yield.
Energy and industrial stocks — two of the hardest hit groups from Monday — also snapped back. Exxon Mobil rose more than 1%, General Electric jumped 5% and Honeywell gained 4%.
Apple shares climbed steadily throughout the session to a 2.6% gain, erasing Monday losses.
Wall Street's sharp sell-off Monday saw the blue-chip Dow tumble 2.1% to post its worst day since October 28 of last year. The S&P 500 fell 1.6% and the Nasdaq Composite dropped about 1.1%.
"We remain constructive on equities and see the latest round of growth and slowdown fears premature and overblown," wrote Dubravko Lakos-Bujas, head of U.S. equity strategy at JPMorgan, in a note Tuesday. The strategist raised his year-end price target for the S&P 500 to 4,600 from 4,400, representing a gain of 8% from Monday's close.
With Tuesday's rebound, the S&P 500 sits 1.6% below its record hit last week. During Monday's losses, the equity benchmark traded below its 50-day moving average at one point. However, the index managed to close above that key technical level Monday, an optimistic sign for traders that foreshadowed Tuesday's rebound.
CNBC's Jim Cramer said the sell-off Monday pushed out some of the speculators taking too much risk in stocks this year and it would end soon.
"Once the speculators are blown out … and the stocks that are already down huge start rallying, then we can find a tradeable bottom," Cramer said. "We're close, but the speculators haven't been fully crushed yet."
New Covid cases are rebounding in the U.S. as the delta variant spreads, largely among the unvaccinated. The U.S. is averaging about 26,000 daily cases in the last seven days, more than double the average from a month ago, according to CDC data.
Chris Zaccarelli, CIO at Independent Advisor Alliance, said many of the cyclical companies were selling off on fears that Covid would "stop the recovery in its tracks."
"We don't believe that that's the case and are willing to let the sell-off run its course and buy the dip on the belief that the economy will fully recover and return to its prior growth trajectory, bringing most of the cyclical companies in the airline, travel and leisure industries along with it."
Bitcoin fell below the $30,000 level overnight, triggering selling across cryptocurrencies and another sign that speculation may be coming out of the markets. The price drop didn't lead to an extended sell-off and the price held steady in the $29,000 range throughout the day.