Stocks advanced Wednesday after investors found encouragement in earnings reports from media giants Disney and Time Warner. Oil prices skidded after the U.S. announced inventories rose for a fourth straight week.
The market had a wobbly morning as investors weighed concerns about an economic slowdown with the upbeat earnings news.
Bargain hunters are trolling for good deals after the Dow Jones Industrial Average and S&P 500 index on Tuesday posted their biggest one-day declines since Feb. 27. The catalysts for Tuesday's super selloff was a sharp drop in a gauge of the services sector, which accounts for 80 percent of the U.S. economy, and comments from a Fed official, who said a "mild recession" is possible.
The front-month contract for light, sweet crude oil fell below $87 a barrel at one point after the Energy Information Administration reported that the crude-oil supply shot up seven million barrels to 300 million barrels, the fourth straight increase. The U.S. gasoline supply surged to its highest level in nearly 14 years.
"The crude build was enormous," oil analyst Amanda Kurtzendorfer of Summit Energy in Louisville, Kentucky, told Reuters. "The margins just aren't there for the refiners to run full out. I expect the build in inventories to continue."
The Labor Department reported earlier that the rate of worker productivity growth slowed to a 1.8 percent annual rate in the fourth quarter but still topped economists' expectsations of a 0.4 percent rise. Labor costs increased 2.1 percent.
In other economic news, the Mortgage Bankers Association reported that U.S. mortgage applications, which include both purchase and refinance loans, rose to their highest level in nearly four years last week, fueled by demand for home-purchase loans.
Investors will also have the Super Tuesday primary results to digest. Sen. John McCain extended his lead in the Republican contest, while Senators Clinton and Obama remained in a tight race on the Democratic side.
"A little rebound after yesterday's decline is not so surprising, "Peter Dunay, investment strategist at Leeb Capital Management, told Reuters. "Beyond financials, earnings seem to be pretty good."
But whether or not the rally will have legs is another question.
"It's going to be a tough day to have a really strong rally," Warren Meyers of Walter J. Dowd told CNBC. "We're in a range now of probably a few hundred points and with some of this downward pressure selling some of the financials it's going to be really tough to sustain a rally."
Disney was the biggest gainer on the Dow after the media and entertainment giant reported its net fell 27%, but earnings blew past expectations amid strong results from its theme park, media and consumer products groups.
Alcoa and American Express rounded out the top three Dow leaders.
Alcoa may have benefitted from news that Rio Tinto has rejected BHP Billiton's $147.4 billion hostile bid for the mining company, which would be the second-largest deal in corporate history if it goes through. Chinese state-owned aluminum company Chinalco and Alcoa recently purchased a joint 9 percent stake in Rio. Rumors are swirling that Chinalco is planning to increase its stake in Rio.
American Express , whose stock took a beating this week after an analyst downgrade on Monday, has a semi-annual financial meeting tonight.
Time Warner shares rebounded as investors found some encouraging details in the media giant's earnings report. The company said it missed quarterly profit expectations by a penny and reduced its full-year profit growth target. However, the second-largest U.S. cable operator reported increases in broadband and phone subscribers as well as sales of "Harry Potter" home videos. The company also said it could still top Wall Street's expectations for 2008 profits.
Shares of Toll Brothers bounced back after the largest U.S. luxury home builder said on Wednesday that it expects to report a 22 percent drop in fiscal first-quarter home-building revenue amid a dire housing market. Toll said it expects home-building revenue of $842.7 million for the quarter, down from $1.09 billion a year earlier. Official results are due out on Feb. 27.
Investors will be tuned to Cisco Systems, which reports earnings later today. The world's largest maker of routers, switchers and other networking gear, was hit in November by a dramatic drop in orders from U.S. banks squeezed by the credit crunch. The news of weaker demand sent Cisco shares -- and the tech-heavy Nasdaq -- tumbling. Analysts are expecting earnings of 38 cents a share, compared with 33 cents a share a year earlier. Investors bid the shares higher in early trading.
Richmond Federal Reserve President Jeffrey Lacker, who spooked investors Tuesday by saying a "mild recession" is possible, said Wednesday that the central bank is currently focusing on risks to growth but it can't set aside inflation concerns entirely, particularly since past expectations that energy prices would ease had consistently been off track.
"We keep missing and it poses a dilemma for us," Lacker, who is not a voting member on the Fed's policy-setting panel this year, told students at Marshall University.
Also on the calendar are Fed Governor Randall Kroszner at 12:30 pm and Philadelphia Fed President Charles Plosser at 12:40 pm.