Banks and energy companies surged Wednesday and smaller companies made huge gains as stocks got back almost all the ground they lost the day before. Investors reversed course as they hoped Italy would be able to avoid a new round of elections after all.
Financial companies rallied as bond yields turned higher and energy companies rose along with U.S. crude oil, which busted out of a five-day losing streak. The shift came after Carlo Cottarelli, nominated to be Italy's next prime minister, said there were "new possibilities" to form a government.
Stocks had plunged the previous day as investors expected gridlock to be resolved with new elections that could have turned into a yes-or-no referendum deciding whether Italy would continue to use the euro.
JJ Kinahan, chief market strategist for TD Ameritrade, said the market often reacts irregularly to political events like the uncertainty in Italy or tensions between the U.S. and North Korea: stocks often fall fast and then recover in quick fashion. That process can sometimes repeat itself weeks or months later.
"If there's no follow-up news, they tend to come back near where they started," he said. "I wouldn't count on it being done for the summer."
The S&P 500 index jumped 1.3 percent, to 2,724.01. The Dow Jones industrial average climbed 306.33 points, or 1.3 percent, to 24,667.78. The Nasdaq composite gained 0.9 percent, to 7,462.45.