Wall Street rally gains steam, with the Dow up 600 points as tech shares rebound

Stocks ripped higher on Wednesday as tech shares clawed back some of the steep losses that pushed the Nasdaq Composite into correction territory.

The Dow Jones Industrial Average traded 600 points higher, or 2.2%. The S&P 500 jumped 2.6% and the Nasdaq Composite advanced 3.3%.

“We were due for a bounce,” said Christian Fromhertz, CEO of Tribeca Trade Group. “We had three days of decent selling and these things tend to get a little overextended.” But Fromhertz is not ready to sound the all-clear. “I want to see if this bounce can hold to see if there’s real buying underneath it,” he said. 

Shares of Tesla, which had their single worst day ever on Tuesday dropping 21%, rose 7% Wednesday. Apple, which lost more than 6% in the previous session, was up by 5.2%.

Those two stocks, along with Microsoft, Netflix, Amazon, Alphabet and Facebook, lost $1 trillion in market value the last three days. All seven were rebounding Wednesday. At the S&P 500 sector level, tech rallied 4.2%.

If you haven’t bought anything, maybe you dip your toe in,” CNBC’s Jim Cramer said on “Squawk on the Street.” However, he also urged investors be careful because “there is a bubble in a lot of tech stocks that are very hard to try to value.”

Wall Street was coming off its worst three-day stretch in months as the S&P 500 tech sector dragged down the broader market from record highs set last week. Recently, traders have been dumping tech shares — the best-performing group in the market — in favor of more beaten-down names.

This rotation pushed the tech-heavy Nasdaq down more than 10% from its record high and into correction territory. Wednesday’s gains put the composite back out of correction levels. 

“The megacap tech stocks are no longer invincible,” Tom Lee, head of research at Fundstrat Global Advisors, wrote in a note. “The bludgeoning seen in the last few days resulted in sharp pullbacks for these stocks.”

Many on Wall Street believe the technology weakness derived from worries that the massive tech run-up pushed valuations to unsustainable levels. Even with last week’s pullback, the Nasdaq is up more than 60% from its March bottom. 

“Some are suggesting this is the start of another dramatic sell-off, similar to the spring of 2000 when the ‘tech bubble’ burst. I highly doubt that,” Kristina Hooper, chief global market strategist at Invesco, said in an email to CNBC. “I think of this rout not so much as a correction, but as a digestion given that the Nasdaq Composite rose more than 60% from its March bottom in the course of less than six months. All in all, I think this is a healthy period of consolidation after a dramatic run-up.”

To be sure, longtime hedge fund manager Stanley Druckenmiller thinks investors should be cautious because the market is currently in a mania driven by easy monetary policy and investor speculation. 

“Everybody loves a party … but, inevitably, after a big party there’s a hangover,” Druckenmiller, CEO of Duquesne Family Office, told CNBC’s “Squawk Box.” “Right now, we’re in an absolute raging mania. We’ve got commentators encouraging companies to do stock splits. Companies then go up 50%, 30%, 40% on stock splits. That brings no value, but the stocks go up.”

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