Wall Street bounced more than 2 percent on Wednesday, reversing three days of losses after Germany's top court smoothed the way for Berlin's participation in bailouts that could ease Europe's debt crisis. But investor caution that there remains a long road to recovery was underscored by light trading and continued high volatility as shown in the CBOE VIX volatility index.
--- Bank shares jump 6pc, Bank of America up 7pc
--- Yahoo CEO abruptly fired, shares up
In almost a mirror image of the previous session, financial stocks rebounded sharply, with the KBW Bank Index up nearly 6 percent. Bank of America Corp jumped 7 percent, helped by a management shake-up. European stocks rallied off a two-year low after the German court rejected lawsuits aimed at blocking the country from joining efforts to aid Greece and other nations. Germany's DAX index leapt more than 4 percent.
Kevin Caron, market strategist at Stifel, Nicolaus & Co in Florham Park, New Jersey, cautioned that although valuations are more attractive after a 12 percent decline in the S&P 500 index since April, uncertainty over the festering European debt crisis and the path of the US economy will continue to dog Wall Street. The Dow Jones industrial average gained 275.56 points, or 2.47 percent, to 11,414.86. The Standard & Poor's 500 Index rose 33.38 points, or 2.86 percent, to 1,198.62. The Nasdaq Composite Index added 75.11 points, or 3.04 percent, to 2,548.94.
Volume was just 7 billion shares on the NYSE, Amex and Nasdaq, among its lightest readings over the last month and well below last year's average of 7.56 billion. Bank of America rose 7 percent to $7.48 and was the top percentage gainer on the Dow after the heads of its consumer banking and global wealth and investment management units left. Bank of America has lost almost half of its market value this year.
The CBOE Volatility index fell 9.6 percent after spiking 9 percent on Tuesday but still remained over 30, a level often seen as a warning sign for equity markets. The index usually moves inversely to the S&P 500. The total put-to-call ratio for all listed options finished at 0.91 on Wednesday, below the 22-day moving average of 1.15, according to option analytics firm Trade Alert. The ratio is the lowest level in one month when the ratio is adjusted for ex-dividend trading in call options.
Shares of energy companies, a sector closely tied to economic growth, were also higher. The S&P energy index rose 3.7 percent while the price of US crude rose $3 to a five-week high Wednesday, Yahoo Inc shares gained 5.4 percent to $13.61 after its chairman, Roy Bostock, abruptly fired Chief Executive Carol Bartz on Tuesday, ending a tumultuous tenure marked by stagnation and a rift with Chinese partner Alibaba.
Darden Restaurants Inc was the biggest loser on the S&P 500, falling 3.6 percent to $44.54 a day after the operator of the Red Lobster and Olive Garden restaurant chains warned that Hurricane Irene hurt its fiscal first-quarter earnings. Nvidia Corp climbed 8.1 percent to $14.25 a day after the chipmaker forecast 2013 sales that topped market expectations.