US stocks advanced on Wednesday, as gains in financial and energy shares helped equities recover from initial declines, but investors remained cautious about the potential for another flare-up in US-China trade tensions.
The financial sector was up 1.06%, clawing back some of the losses from the previous session triggered by a deepening of the US Treasury yield curve inversion, which often precedes a recession.
Gains in the benchmark S&P 500 index were also supported by a 1.75% jump in energy stocks after industry data showed a fall in stockpiles of US crude, boosting oil prices.
The two have been the worst performing of the 11 major S&P sectors in August.
"When you look at both financials and energy being among the worst on a relative strength basis, you could say it is a dead cat bounce," said Sam Stovall, chief investment strategist at CFRA Research in New York.
Investors took some solace in the lack of new developments on the trade front, although the US Trade Representative's office on Wednesday reaffirmed President Donald Trump's plans to impose an additional 5% tariff on a list of $300 billion of Chinese imports starting on Sept. 1 and Dec. 15.
Next week, investors will look towards the monthly jobs report and manufacturing data which could guide expectations on the likelihood of another rate cut from the Federal Reserve at its mid-September meeting.
The Dow Jones Industrial Average rose 220.28 points, or 0.85%, to 25,998.18, the S&P 500 gained 16.21 points, or 0.56%, to 2,885.37 and the Nasdaq Composite added 20.77 points, or 0.27%, to 7,847.71.
Another factor potentially proving a lift to stocks was the drop in the 30-year US Treasury yield to below that of the S&P 500 dividend yield, making equities a more attractive income alternative.
Technology stocks dipped 0.12%, pressured by declines in shares of Microsoft Corp and Autodesk Inc.