“There’s a lot of pressure on the Fed right now, so this was a big vote of confidence from investors,” said J.J. Kinahan, chief strategist at TD Ameritrade.
The Dow Jones industrial average jumped 274.83 points, or 1.6 percent, to 16,994.22. The Standard & Poor’s 500 index added 33.79 points, or 1.8 percent, to 1,968.89 and the Nasdaq composite rose 83.39 points, or 1.9 percent, to 4,468.59. All three indexes had their biggest point and percentage gains of 2014.
The jump was the latest whipsaw day for the stock market. Only the day before, the Dow plunged 273 points on fears that the global economy was slowing. Wednesday’s gains only made up for what investors lost on Tuesday.
Volatility has picked up sharply in U.S. stocks recently. The Dow has had moves of 200 points or more five times in the last 10 days. There have only been six other days this year when the index made moves of that magnitude.
Market watchers have warned for some time now that the market was due to have more volatility, particularly with economic weakness developing in Europe and Asia and with the Federal Reserve on track to end a bond-buying stimulus program later this month. Analysts say investors should prepare to see more big moves in coming weeks.
“I don’t think this is going to end until the Fed’s meeting in October,” said James Liu, a global market strategist at JPMorgan Funds. “The market is in a tug-of-war between the slowdown in international economies and the strong economic numbers here in the U.S.”
Investors like low interest rates because they keep borrowing costs down for businesses and individuals, encouraging spending and investment. The Fed sees inflation remaining low for the next few years, another positive for most investors.
The U.S. economy has been a bright spot in an otherwise darkening picture. The International Monetary Fund cut its outlook for this year and next for global growth, citing weakness in Japan, Latin America and Europe. The IMF expects the global economy will grow 3.3 percent this year, slightly below what it forecast in July.
Europe, in particular, has been weak. Germany said Tuesday that its industrial output fell 4 percent in August, far more than expected.
In contrast, reports like the September jobs survey, released last Friday, show the U.S. economy continuing to expand. Investors have become concerned that Europe’s weakness will eventually drag on the U.S. too.
“I think the U.S. economy could be protected from Europe for a quarter or two, but will start hurting us here eventually,” Kinahan said.
Investors will now turn their attention to U.S. companies, which will start reporting their quarterly results in the coming weeks.
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