Federal Reserve - scheduled to meet next week - might be lowering the discount rate before then. The central bank has also been adding a substantial amount of liquidity to the financial system over the last three days.
"Once people hear about a rumor, they cover their shorts. Even though it's just a rumor that's out there," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. Short-covering is when traders undo bets that the market is going to fall. "There was a lot of bad news this morning. It's pretty clear Wall Street wants a rate cut and wants it soon."