The U.S. stock market has shaken off its worst plunge in months by having a crazy two-day rally, fueled mainly by wishful thinking.
The Dow Jones Industrial Average on Thursday soared 181.19 points, or 1.4 percent to 12986.58, its best day in nearly a month. The Standard & Poor's 500-stock index jumped 1.4 percent to 1387.57, and the Nasdaq Composite Index gained 1.3 percent to 3055.55.
The Dow has added 270 points in just the past two days, erasing roughly half of a five-day stumble during which it fell 4 percent, its worst losing streak since last July-August.
The gains on Thursday were fueled by little more than hopes and rumors. Starting early in the morning, there was a persistent rumor going around Wall Street that China is going to report 9 percent gross domestic product growth in the first quarter tonight, much better than the 8.4 percent economists expect. How did they come up with this rumor? God only knows, but it was good enough to buy stocks.
And Wednesday night Fed Vice Chairman Janet Yellen sounded some dire notes about the economy and warned that the Fed might keep its free-money hoses open well past its current promised end date of 2014 -- music to the Fed-addicted market's ears. New York Fed President Bill Dudley reinforced the message with a speech of his own on Thursday.
Meanwhile, Italy managed to borrow some more money this morning without having to saw off a limb, easing pressure on bond markets there and in Spain -- although borrowing costs were still sharply higher in Europe from a month ago, and the situation there is still dire, George Soros warned this morning in the Financial Times.
This cocktail of good news, if you can call it that, was enough to help markets overcome some mixed economic data in the morning, including a surprising surge in weekly claims for new unemployment benefits.
A tougher test will come on Friday, when banks start reporting their results, led by JPMorgan -- arguably the world's most important bank -- and Wells Fargo.
Bank shares soared today along with the rest of the market, including a 3.5 percent gain for Bank of America and a nearly 2 percent gain for JPMorgan.
But Treasury bond rates remain near historic lows, typically a sign that the bond market doesn't expect much in the way of economic growth. Low bond yields were a warning signal earlier this year that stock-market losses were ahead. They're still sounding the alarm.
Another warning sign: Trading volume is still low, as it has been for much of the year. Retail investors still don't believe in this stock market, pulling money out of stock mutual funds consistently throughout the year, even as stocks rose to their highest levels since before the crisis.