Dow rises 250 points as economic recovery plays rebound

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U.S. stocks rose on Wednesday led by a rebound in cyclical names as equities tried to recover from two straight days of losses.

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The S&P 500 climbed 0.7%, while the Dow Jones Industrial Average gained 250 points. The tech-heavy Nasdaq Composite advanced 0.8%.

The small-cap Russell 2000 rallied 2%, bringing its 2021 gains to 13%, as investors piled into shares more sensitive to the economic recovery.

Shares of Norwegian Cruise Line Holdings led a pop in reopening plays after Goldman Sachs upgraded the stock. Norwegian jumped more than 7%, while Carnival and Royal Caribbean rose about 3% each.

United Airlines rebounded 2% after plunging 8.5% on Tuesday after the carrier reported its fifth consecutive quarterly loss and said that business and international travel is still far from a recovery. The State Department said it would increase “do not travel” advisories to 80% of the world’s countries, adding that the pandemic presents an “unprecedented risk to travelers.”

Netflix shares plunged about 8% after the streaming giant reported subscriber additions that fell far short of Wall Street estimates as the demand surge from the pandemic started to fade. The company also said it only expects to add about 1 million subscribers in the current quarter, well below estimates. Shares of Roku fell 3% in sympathy.

Companies have been handing in solid quarterly results, but the bar is high for earnings to lift the stock market higher after a strong rally to record highs this year. Plus, most analysts are focused on the outlook companies are willing to give. The Dow and the S&P 500 are still both up 10% for the year after hitting records on Friday.

“It appears the economy is now well on its way to recovery. Still, earnings guidance early in the current reporting season appears to lean more conservative than our economic projections suggest,” said Scott Wren, Wells Fargo’s senior global market strategist.

More than 70 S&P 500 companies have reported so far, and they posted a 23% upside to analysts’ earnings expectations on average, according to CNBC calculations.

Wall Street just suffered back-to-back losses as reopening plays led the market lower amid renewed concerns about rising new Covid cases globally. The Dow fell 250 points on Tuesday for its worst daily performance since March 23, while the S&P 500 and the Nasdaq slid 0.7% and 0.9%, respectively.

The Cboe Volatility Index, also known as the VIX or the market’s fear gauge, rose for two consecutive days, landing above 18 on Tuesday after hitting a 14-month low last week. The VIX traded slightly lower on Wednesday.

“Market volatility has picked up, amid worries over the course of the pandemic, inflation concerns, and a high-profile earnings disappointment from Netflix,” Mark Haefele, CIO at UBS, said in a note. “While we see further spikes in volatility ahead, we expect the market rally to continue and the rotation trade to resume.”

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