Wall Street turned back a six-day losing streak on Thursday, with the Dow and the S&P 500 bouncing up 1 percent, after data on U.S. exports eased concerns about a stalled economic recovery that had weighed on the market for days.
Investors snapped up beaten-down stocks, especially in growth-related sectors, following days of decline.
A spike in oil prices helped materials and energy stocks to move higher. The S&P materials sector index <.GSPM> rose 2 percent and the energy index <.GSPE> gained 1.6 percent. The Morgan Stanley cyclical index <.CYC>, which is down more than 5 percent in June, rose 1.2 percent.
Several economists said the spike in exports from the United States in April could prompt revisions higher of gross domestic product growth in the second quarter.
But the mood remained fragile as many analysts saw the bounce as temporary and still expected the S&P 500 to retest its March low after a string of data, including the latest payrolls report, provided little room for optimism.
A test of 1,250 is pretty likely in the next couple of weeks, said John Canally, an investment strategist and economist for LPL Financial in Boston.
Reflecting the bearish sentiment, the daily volume put/call ratio for equity options on the Chicago Board Options Exchange (CBOE) was at an 18-month high as of Wednesday's close, according to data posted on the exchange website, indicating investors are significantly bearish on the stock market.
The Dow Jones industrial average <.DJI> was up 120.14 points, or 1.00 percent, at 12,169.08. The Standard & Poor's 500 Index <.SPX> rose 13.24 points, or 1.03 percent, at 1,292.80. The Nasdaq Composite Index <.IXIC> added 16.66 points, or 0.62 percent, at 2,692.04.
The S&P had lost more than 6 percent in the last six days leading up to Thursday, while the Nasdaq had nearly erased its gains for the year.
CBOE data showed that put/call ratio on equity options rose to 0.99 on Wednesday, which means 99 puts traded for every 100 calls, the highest ratio since January 15, 2009. The average had been between 0.55-0.70 this year.
The high put/call ratio signals investors are actively hedging their bets and setting up for further market declines. But as in other cases, extreme bearishness could also be a contrarian indicator.
A lot of fear came into the market as investors bought puts, said Jay Shartsis, director of options trading at R.F. Lafferty & Co in New York.
(But) the high ratio identifies a good buy level for stocks. When a ratio turns this high, from a contrarian view, the risk-reward factor is now significantly skewed to the buy side, Shartsis said.
The CBOE Volatility Index <.VIX>, Wall Street's so-called fear gauge, fell 7.7 percent to 17.35 on Thursday, the largest daily drop since March 21.
The PHLX semiconductor index <.SOX> bounced off its 200-day moving average and was holding above 410, a key level that offered strong support in March.
Texas Instruments Inc
Reflecting the appetite for tech stocks, shares of Fusion-io
But shares of China-based Taomee Holdings Ltd
Details of Thursday's economic data showed the U.S. trade deficit narrowed unexpectedly in April as U.S. exports rose to a record and imports from Japan tumbled more than 25 percent.
A separate report showed the number of Americans filing new claims for unemployment benefits rose by 1,000 last week, while continued claims fell more than expected.
(Additional reporting by Rodrigo Campos in New York and Doris Frankel in Chicago; Editing by Padraic Cassidy)