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Stock market rebounds after a volatile week that saw 1,000-point swing in one day

The stock market rebounded on Thursday following a steep fall yesterday after the US reported its first case of the COVID-19 Omicron variant.

The Dow Jones Industrial Average rose by 666 points, nearly 2 percent, as of Thursday afternoon, and the S&P 500 and Nasdaq Composite both went up by 1.6 percent. 

The recovery marks a positive outlook for the economy after a roller-coaster ride on Wall Street whiplashed investors on Wednesday as an early market rally of more than 500 points reversed course and crashed by midafternoon, which piled up major losses for stocks.

Wall Street traders enjoyed a rebound in the stock marker on Thursday, after a volatile month took a worse turn on Wednesday with a 1,000 point swing that ended in losses

The Dow Jones, Nasdaq Composite and S&P 500 all saw upswings on Thursday 

Despite the dip, which triggered the biggest back-to-back selloff since October 2020, investors hoped for a renewed vigor in the stock market following Thursday's rally. 

'Even though these short bouts of volatility are surprising and certainly have sent a chill through markets, we still have a significant bank of equity returns to enjoy year to date,' Aoifinn Devitt, chief investment officer at the Moneta Group, told Bloomberg. 

The markets, which were trending down throughout November, saw the biggest drop when the White House announced that the first case of the omicron variant had been found in San Francisco. 

As of Thursday, the US confirmed one more case of the variant in Minnesota.  

Wednesday's fall of 460 points also came as Federal Reserve Chairman Jerome Powell admitted that tough measures might be required to reign-in inflation. 

The Dow Jones erased its gains of some 520 points to finish down 460 points on Wednesday, closing the session at a loss of 1.3 percent

Federal Reserve Chairman Jerome Powell admitted that tough measures might be required to reign in inflation, which is not as 'transitory' as he had long asserted

The Consumer Price Index rose 6.2 percent in October 2021 from one year prior

In testimony to Congress, Fed Chair Powell admitted that 'the risks of higher inflation have moved up' and signaled that the central bank may finally have to take tough action to tackle rising prices.

Inflation hit 6.2 percent in October, the highest figure since November 1990, and far above the Fed's two per cent target. Economists fear the figure for November - set to be released in the coming days - could soar even higher.

Powell has long insisted that inflation is 'transitory' and will soon disappear, and his change of tone panicked investors who fear that an accelerated end to easy money policies will put a damper on high-flying growth stocks.

Last month, the Fed began reducing its purchases of Treasuries and mortgage-backed securities from $120 billion per month at a pace that would put it on track to end purchases by mid-2022. The program was introduced in early 2020 to help nurse the economy through the pandemic.

Powell said in his testimony that policymakers would discuss at their December 14-15 meeting whether to accelerate the end to that program in light of the strength of the economy.

That early wind-down would open the door for the Fed to raise short-term interest rates, diluting one of the main reasons for the S&P 500's more than doubling since late March 2020.

Low rates encourage investors to pay higher prices for stocks that have longer timelines for returns, and have helped deflect criticism that the market had become too expensive.

So a faster ramp up in short-term rates threatens stocks, but analysts say it could also be an encouraging signal about the Fed's confidence in the economy's strength.

Though lawmakers asked Powell no questions about how the new variant might change the economic outlook or the Fed's policy response, New York Fed President John Williams told the New York Times in an interview published Wednesday that it could both slow economic activity and exacerbate inflationary pressures.

That daunting combination could add to the challenges Fed policymakers face as they calibrate their response to the good news from a strengthening economy, the bad news of a possible new COVID-19 surge, and inflation that is persisting longer and staying higher than expected. 

Strengthening labor market conditions were reinforced by the ADP National employment report on Wednesday showing private payrolls increased by 534,000

A report from payroll processor ADP said that non-government employers hired more people in November than economists expected. 

That could raise expectations for Friday´s more comprehensive jobs report from the U.S. government, though the ADP report doesn´t have a perfect track record predicting it.

A stronger economy would burn more fuel, and crude oil prices initially rose, briefly sending Benchmark U.S. crude 2.1 percent higher. But it shed those gains, closing down 0.9 percent at $65.57 per barrel. It momentarily dropped below $65 the day before.

Vertex Pharmaceuticals rallied 9.7 percent for the biggest individual gain in the S&P 500 after it reported encouraging data from a study of its investigational treatment for kidney disease. More than 80 percent of stocks in the S&P 500 fell.

Travel stocks had some of the biggest swings Wednesday. Norwegian Cruise Line climbed 4.6 percent in morning trading, but ended with an 8.8 percent loss. American Airlines flipped from a 3.1 percent gain to an 8 percent loss.

A measure of fear on Wall Street jumped 14.5 percent. The VIX, which shows how worried investors are about upcoming drops for the S&P 500, is still well above where it was before Omicron walloped markets worldwide after Thanksgiving.

'The biggest driver of the near-term volatility has been Omicron,' said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.

'It clouds near-term visibility, and it's just simply too early to tell the extent to which it will evade existing vaccines and how severe it will be relative to other mutations. It's the big unknown.'