U.S. stocks climbed higher on Wednesday as equities continued their rebound from a one-day rout to start the week.
The Dow Jones Industrial Average rose 286.01 points, or 0.83%, to 34,798.00. It's sitting less than 1% away from a record. The S&P 500 gained 0.82% to 4,358.69. The Nasdaq Composite climbed 0.92% to 14,631.95.
The 30-stock index rallied nearly 550 points on Tuesday, after tumbling 725 points on Monday for its worst session in eight months. The back-to-back rallies have now completely wiped the losses from the start of the week for all three indexes.
"Tuesday was a textbook oversold bounce following Monday's collapse," Thomas Essaye of Sevens Report Research said in a report Wednesday. "Beyond short-term gyrations, however, for value and cyclicals to reassert leadership, we will need to see yields bottom and economic growth beat estimates (two things we think will happen)."
The bond market, specifically the 10-year Treasury yield, is driving the equity markets. On Wednesday, the 10-year yield rose 8 basis points to 1.29% (1 basis point equals 0.01%). The yield dropped to a new 5-month low on Monday, before stabilizing on Tuesday. The drop in rates unnerved equity investors by signaling a possible slowing of the economy due to spreading Covid variants or a possible Federal Reserve mistake.
Even with bonds moving higher, the trend is still down, compared to five months ago when the 10-year was above 1.7%.
"The catalyst for why investors have become comfortable with risk assets over the past two days is admittedly elusive," Goldman Sachs' Chris Hussey said Wednesday. "Perhaps investors have just come to embrace the notion that the reaction function to a new wave of the virus is unlikely to be the same as the reaction function employed in the spring of 2020."
Stocks that would benefit most from a continued swift economic reopening climbed on Wednesday after rebounding from the Monday sell-off in the prior session. Shares of Carnival were up 9.4%. Las Vegas Sands was up 3.4%.
Energy stocks led the continued rally as oil continued to rebound after falling below $70 a barrel on Monday. The Energy Select SPDR rose 3.4%.
Dow member Coca-Cola gave an early boost to market sentiment after reporting quarterly revenue that topped pre-pandemic 2019 levels and raising its full-year forecast. Coca-Cola shares gained more than 1%.
Fellow Dow member Johnson & Johnson's stock traded nearly flat even after the drugmaker reported better than expected second-quarter earnings and revenue and also raised its 2021 guidance.
Moderna joined the S&P 500, giving the stock a 30% boost from a week ago. Its shares gained nearly 4.5%.
Verizon shares are up slightly after reporting better-than-expected revenue and subscriber growth and raising its full-year outlook.
Netflix reported disappointing third quarter subscriber guidance after the bell on Tuesday. The streaming giant said it expects 3.5 million net subscribers in the third quarter, nearly 2 million below analysts' estimates. The company also reported earnings that missed expectations.
Netflix shares were last down 3.2%.
About 85% of S&P 500 companies that have reported so far have beaten estimates, according to FactSet.
Some strategists see the market heading into a volatile period, in which there could be a deeper pullback. Investors are juggling concerns about inflation as well as new Covid cases rebounding in the U.S. as the delta variant spreads.
"I think what we've seen here are the early warning shots of a correction that we'll see probably... in late August, September, October," said Matt Maley, equity strategist at Miller Tabak.
However, data shows spikes in Covid case counts typically don't keep the stock market down for long. In the 14 months since the April peak in average daily cases last year, U.S. case counts have flared up four times during which the S&P 500 stayed positive.
Goldman's Hussey said a better knowledge of Covid and the vaccines available to mitigate its impact could be a contributor to market confidence that U.S. economic activity isn't likely to freeze again with another wave of virus cases.
Rich Steinberg, chief market strategist at The Colony Group, told CNBC to expect "the continuation of whip saw behavior from investors."
"We will get a follow-on rally as investors have been conditioned to buy the dip," he said. "They have also been negatively conditioned to worry about the economy and the virus from last year's stressful world. I would describe the environment as skittish, but we are not seeing high levels of short-termism."
— with reporting from CNBC's Patti Domm and Michael Bloom