The Dow Jones Industrial Average jumped more than 300 points Thursday, as stocks broadly rallied across the market, reversing losses from a steep selloff a day earlier.
The blue-chip index added 345 points in recent trading, rising to 30654, while the S&P 500 rose 1.1%. Some technology stocks also rose, pushing the Nasdaq Composite up 0.7%.
Trading around those two stocks had captured the attention of Wall Street and Main Street alike, and their parabolic rise coincided with the sharpest stock selloff in months on Wednesday. The stumble in stocks follows a strong start to the year that some investors say had pushed share prices beyond levels justified by corporate fundamentals.
“There is some over-excitement in the market,” said Olaf van den Heuvel, chief investment officer for Aegon Asset Management in the Netherlands, pointing to the surge in GameStop shares as one example. “It was bubble territory.”
Earnings appeared to contribute to the rebound. Shares of American Airlines Group jumped 26% after the airliner reported a narrower loss than what analysts had predicted. Other travel stocks rallied, including United Airlines, up 7.3%, and Carnival, which added 7.2%.
Tesla dropped 5.2% after the electric-vehicle maker—whose shares have soared in recent months—posted its first full-year profit but missed Wall Street’s expectations.
“It is nerve-racking,” said Remi Olu-Pitan, a fund manager at Schroders, referring to the big moves in stocks fueled by day traders swapping tips online.
“You will see more violent pullbacks,” she said, adding that Europe’s slow progress on vaccines and Covid-19 restrictions in major economies were also weighing on stocks.
Heavy retail trading of stocks and options is rippling through broader markets, said Peter Garnry, head of equity strategy at Saxo Bank. Hedge funds have moved to cover bets that stocks targeted by individual investors on social media would fall. That has increased volatility and prompted other funds to sell, hitting benchmark indexes, according to Mr. Garnry.
Weekly data showed applications for unemployment benefits, tracked as an indicator of the health of the labor market, declined last week but remained elevated at 847,000. Separate figures showed gross-domestic product, a broad gauge of the value of goods and services produced in the economy, grew at a 4% annual rate in the final quarter of 2020, slightly slower than economists had expected.
This data came after the Federal Reserve maintained its easy money policies Wednesday, saying that business activity has softened with the resurgence of Covid-19 cases.
In one sign of rising risk aversion, the yield on the benchmark 10-year U.S. Treasury note dropped below 1% for the first time since Jan. 6, before climbing back to 1.008%, according to Tradeweb. Bond yields fall as prices rise. Falling yields are often an indicator that investors see the economic outlook weakening.
Stocks traded mostly lower overseas. The pan-continental Stoxx Europe 600 was mostly flat in recent trading. Hong Kong’s Hang Seng dropped 2.6%, the Shanghai Composite Index fell 1.9% and Japan’s Nikkei 225 declined 1.5%. Container-shipping giant Cosco Shipping led losses in mainland China, sliding 10%.
—Michael Wursthorn and Caitlin Ostroff contributed to this article.
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