Stocks leap: Dow up 619, S&P 500 exits correction zone

This time, the Dow stuck its late-day dismount.

The Dow Jones industrial average rebounded in a big way Wednesday, surging nearly 620 points — its third-best daily point gain ever and best since 2008 — ending a painful six-session losing streak and delivering Wall Street the first signs of stabilization it has craved after the stock market's worst rout in four years.

After yesterday's failed rebound briefly dashed hopes of a recovery, investors searched Wednesday  for signs of stock market stability and a bounce that would hold. They got their wish.

Unlike Tuesday, when the Dow let a 442-point gain disappear and finished down 205 points, the Dow rallied sharply late in the session, closing up 619.07 points, or 4%, to 16,285.51.

"It seems to me that the selling has exhausted itself for now," says Bob Doll, chief equity strategist at Nuveen Asset Management, adding that investors should expect more turbulence in the days ahead.

The market rally stuck this time because more good news was released about the U.S. economy, a Federal Reserve member hinted that an interest rate hike might not come in September as feared, and Wall Street was convinced that Chinese authorities would do more to stimulate its shaky economy.

Brian Belski, chief investment strategist at BMO Capital Markets, says the big bounce signals that business fundamentals are more powerful than fear.

"Fundamentals always defeat fear and emotion," Belski told USA TODAY, adding that rising angst related to China's slowing economy and the recent stock market correction were both "normal and overdone."

A strong reading on July U.S. durable goods orders, or sales of big-ticket items such as refrigerators and dishwashers, "confirms that the U.S. economy has some momentum and should be able to withstand the slowdown in China," says Russ Koesterich, BlackRock's global chief investment strategist.

Adding to the positive sentiment were comments from NY Federal Reserve President William Dudley who said the case for the Fed raising interest rates at its meeting in September is "less compelling" because of the recent developments in international markets, including China. Low rates have been a big driver of higher stock prices the past six years, and Wall Street has been wobbly ever since the nation's central bank hinted at its meeting in late-July that it was moving closer to its first hike in nearly a decade.

Heading into Wednesday's trading session, David Rosenberg, chief economist and strategist at Gluskin Sheff said in a note, "It is how we close, not open that matters."

To say the market needed a strong close would be an understatement.

Wednesday's historic day on Wall Street could go a long way toward stabilizing the market after six days of heavy selling.

John Higgins, a market strategist at Capital Economics, says there are "renewed signs that the market is stabilizing after Tuesday's 'false dawn.' "

Still, Wednesday's big gains don't erase the financial pain inflicted by the market's first 10 drop since 2011. The Dow is still 11.1% off its recent high, the S&P 500 is down 8.9% and out of correction territory, the Nasdaq composite remains 10% off its high and the small-cap Russell 2000 is down 12.6%.

After such a steep downturn the past few sessions, the "likelihood of a bounce in the near-term is high," Jason Trennert, founder of Strategas Research Partners, told clients in a note. But he added that the market's "repair process" could take some time and that a "V-shaped" rebound was still not his base case.

Wall Street hoped the Dow could hang on to early gains and change the story line to a market rebound, as opposed to more trouble ahead.

The Dow Jones industrial average kicked off the session up more than 430 points and enjoyed a strong rally into the close, which was the mirror image of Tuesday's price action. The Standard & Poor's 500 gained 3.9% and pulled itself out of correction territory after falling more than 10% for the first time since 2011 during Monday's sell-off. The Nasdaq composite index added 4.2%.

Heading into Wednesday's session, the broader U.S. stock market was basically trading where it was as the panic lows hit Monday morning, when the Dow Jones industrial average plunged almost 1,100 points in a matter of minutes.

U.S. stocks are in their first corrective phase (defined as a drop of 10% or more) since 2011. As the losses pile up, fears of the first bear market since 2009 are on the rise.

Giving the markets a boost early Wednesday was a strong reading on durable goods orders in July. The 2% rise helped boost confidence about the U.S. economy.

After Dudley's remarks during a Q&A session in New York, futures trading showed the odds of a rate hike in September had dipped to 24% down from 28% earlier in the week and down from close to 50%  in late May.

Overseas, battered world financial markets attempted to reclaim lost territory Wednesday with mixed success.

In Asia, Tokyo's benchmark Nikkei 225 index gained 570.13 points, or 3.20%, closing at 18,376.83. The broader Topix index finished with a 3.23% gain.

Though stocks in China ended the volatile trading session lower, the losses were not as dramatic as  in recent days. Chinese officials took steps to shore up its economy and markets Tuesday by cutting interest rates and taking steps to make it easier for banks to lend money to borrowers.

The Shanghai composite index — down by more than 40% since mid-June — climbed nearly 3% in afternoon trading before closing down 1.3% at 2, 927.29.

In Europe, most of the major regional benchmarks were lower. Germany's DAX index was 1.3% lower and France's CAC 40 index dropped 1.3%.

Chinese state media reported Wednesday that employees of Citic Securities  — one of China's biggest securities firms — and one current and one former employee of its market regulator are under investigation on suspicion of illegal stock trading. Three other brokerages announced they are under investigation for possible violations of rules on confirming the identities of customers.

Chinese regulators  slashed interest rates Tuesday and eased banking requirements, helping to fuel enthusiasm or at least ease anxieties.

"A certain calm has descended on Asian markets today, allowing traders to catch a much-needed breath," Chris Weston, chief market strategist at IG, said in a market note. But "it still feels as though volatility can break out at any time."

Earlier, Kazuhiro Takahashi, chief economist for Daiwa Securities in Tokyo, told national broadcaster NHK that world markets are seeing a correction from the boom in China's stock markets, which climbed 60% over the past year.

'"China is just a trigger," Takahashi said. "We will continue to see some fluctuations in the stock markets in the U.S. and Japan, but from the viewpoint of the valuations and fundamentals and earnings growth process, I think the Nikkei average will likely recover. Still, we have to see some concerted actions from major countries, especially China on economic policy and more public spending or monetary easing."

The Nikkei index had lost 2,747.77 points — or 13.37% — over the previous five days.

The Dow Jones industrial average —  in a brutal, six-day losing streak — ended down 205 points Tuesday, or 1.3%, to 15,666.44. The Standard & Poor's 500 index lost 1.4. The tech-stocks-heavy Nasdaq closed Tuesday 0.4% lower.