Initial panic by investors over Donald Trump's unexpected election victory quickly turned into optimism that fueled a stock rally Wednesday after the Republican president-elect delivered an inclusive victory message and hopes rose that his policies would boost key business sectors.
The Dow Jones industrial average jumped 256.95 points, or 1.4%, to close at 18,589.69. That was near August's record high and a U-turn from an 800-point plunge in overnight futures. The Nasdaq and the Standard & Poor's 500 rose about 1.1 % after similar steep futures declines.
As with the surprise "Brexit" decision, when Britain voted in June to leave the European Union, some of the market's turmoil reflected money managers who guessed wrong on the outcome.
"Markets tend to have knee-jerk reactions to these kind of situations," said Nigel Green, chief executive of financial advisory firm DeVere Group in London. Investors "had all but priced-in" a victory by Democrat Hillary Clinton, he said.
Credit markets reflected more nervousness Wednesday. Yield on many bonds, including U.S. Treasury securities, rose amid concerns that budget deficits might increase, pushing up borrowing costs, if Trump follows through on the spending programs and tax cuts he discussed during the campaign.
Greg McBride, chief financial analyst at Bankrate.com, said Trump's speech helped calm investors — for now.
"It's a knee-jerk reaction in both cases, first to the shocking election outcome and second to the very tempered speech that president-elect Trump had given in acceptance," McBride said.
Investors also focused on some of Trump's policy plans — increased infrastructure and military spending, as well as repealing landmark healthcare and financial reform laws — and drove up stocks of companies that would benefit.
Those sectors — banks, aerospace, construction and pharmaceuticals — drove the rally.
But one notable sector suffered in the wake of Trump's upset of Clinton. Stocks in gun makers fell because there would be no post-election surge of sales caused by fears of new gun-control legislation.
Trump was "deliberately vague" on specific policy positions during the campaign, so markets could churn as details emerge, McBride said.
"I would expect very choppy waters in financial markets over the coming weeks and months," he said.
Major stock indexes had fallen around the globe early Wednesday as world markets digested Trump's unexpected victory.
Japan's Nikkei index fell more than 5% overnight, but major European indexes turned positive later Wednesday, recovering from sharper declines earlier in the day.
Prices of many U.S. Treasury securities fell Wednesday, driving their yields higher.
The yield on the 10-year Treasury note jumped to 2.06%, its highest level in eight months.
The opposite often happens when the stock market is volatile as investors seek Treasuries as a haven and bid up their prices, lowering yields.
But Trump's election injected a huge new factor into the market that pushed Treasury prices lower as investors demanded higher interest rates on those securities: the threat of higher inflation.
Some of Trump's economic proposals, including his plan to upgrade the military and the nation's infrastructure, call for more spending that could force more government borrowing and lift interest rates, analysts said.
Trump also is calling for major cuts in tax rates for consumers and businesses, which, if they spur economic growth, could produce higher consumer prices and overall inflation as well, they said.
Guy LeBas, head of fixed-income strategy at the investment firm Janney Montgomery Scott, said bond traders were "pricing in the potential for greater risk" with Trump's election.
There's also confusion about the Federal Reserve Board's next steps regarding short-term interest rates.
After years of keeping rates near zero to help stimulate economic growth after the financial collapse in 2008, the Fed nudged rates up one-quarter of a percentage point in December.
There was widespread speculation the central bank would raise rates again next month. But McBride said some investors now believe Fed policymakers might hold off in the wake of Trump's victory.
There appeared to be more certainty in the equities market as big bank stocks surged with the expectation of less financial regulation, while construction and heavy equipment companies rallied on Trump's expected push for more federal spending on roads, airports and other infrastructure.
Caterpillar stock was up 7.7% Wednesday. And shares of Vulcan Materials Co., which produces asphalt and concrete mixes, shot up nearly 10%.
The Mexican peso was down about 8% against the dollar after plunging earlier Wednesday by more than 13% to a record low amid concerns about Trump's presidency.
Trump has promised to build a wall along the U.S.-Mexico border to halt undocumented immigration. He also promised during the campaign to rewrite or scrap the 2-decade-old North American Free Trade Agreement between the U.S., Mexico and Canada.
Follow @JimPuzzanghera on Twitter
1:05 p.m.: This article has been updated with closing prices for major U.S. stock indexes and the status of credit markets.
11:25 a.m.: This article has been updated with major stock index prices, more detail on rallying sectors, comments from Donald Trump and Nancy Pelosi on infrastructure spending and analysis from Brian Belski of BMO Capital Markets.
9:20 a.m.: This article has been updated with mid-session stock index prices, details on sectors that were rallying, and comments by Greg McBride of Bankrate.com.
8:05 a.m.: This article has been updated with U.S. stock index trading, details on the bond market and comments by Guy LeBas of Janney Montgomery Scott.
7:05 a.m.: This story has been updated with early U.S. stock index trading, as well as comments by Brad McMillan of Commonwealth Financial Network, Nigel Green of deVere Group and Fitch Ratings.
6:35 a.m.: This article has been updated with the U.S. market opening.
6:15 a.m.: This article has been updated with comments from Greg McBride of Bankrate.com and HSBC Global Research.