Dow soars 421 points in best day since Nov. 2011

Stocks soared for a second day Thursday and the Dow had its best day in more than three years as good feelings about the Fed's Wednesday announcement that rate hikes aren't on the immediate horizon continued to boost the market.

The Dow Jones industrial average jumped 421.28 points, or 2.4%, to close at 17,778.15, its best one-day point gain since Nov. 30, 2011. The two-day rally saw the Dow gain 709 points, its best two-day point gain since Nov. 2008.

"The mini correction is over," says David Kotok, chief investment officer at Cumberland Advisors. "The markets are again realizing that the (bull market) basics of low interest rates, low inflation, and a gradual economic recovery are solidly in place."

The Standard & Poor's 500 index gained 48.34 points, or 2.4%, to 2061.23 and has added 88 points, or 4.5%, in two days. That is the broad-based index's best two-day percent performance in more than three years.

Gains were led by tech stocks, the best-performing sector in the S&P. The tech-heavy Nasdaq composite index rose 104.08 points, or 2.2%, to 4748.40.

The stock market's two-day paper gain was approximately $1.1 trillion, according to Wilshire Associates.

"Fed-induced optimism sent the Dow to its best day of the year yesterday, and the blue-chip barometer is set to pick up right where it left off," Karee Venema of Schaeffer's Investment Research noted early in the day.

European stock investors also were reassured by the Fed's comments. An easy Fed also benefits Eurozone companies as it suggests that the U.S. economy -- which has been growing at a roughly 4% clip the past two quarters -- will remain healthy, providing a demand boost to Eurozone firms that sell goods and services to the Americans.

Investors in Europe, especially in Germany and France, are also relieved that the Russian ruble is showing signs of stabilization.

The CAC 40 of France jumped 3.4% and Germany's DAX added 2.8%. The FTSE of Britain gained 2%.

In Asia, Japan's Nikkei 225 index gained 2% and Hong Kong's Hang Seng index gained 1%. The Shanghai composite fell 0.1%

The good market news comes in the wake of volatility churned in recent days by a plunging Russian ruble and cratering oil prices. The ruble has stabilized, now trading for about 60 to one U.S. dollar. Oil is dropping more: A barrel of West Texas intermediate crude is down shy of 2%, at a few dimes above $56.

Remarks by Russian President Vladimir Putin in a long, three-hour news conference led the ruble to a 0.3% drop -- modest compared to a huge, 23% plunge on Tuesday.

The surprising thaw in U.S.-Cuba relations announced by President Obama on Wednesday is having a two-day impact on the Herzfeld Caribbean Basin Fund, which invests in business related to the Caribbean island. The fund -- ticker, CUBA -- riose 4.8% after having soared 28.9% the previous session.

Wednesday and Thursday's market action shows that after a brief bout of turbulence, a risk-on mentality has returned to financial markets largely due to the Fed.

Investors' positive vibes spring from the Fed's Wednesday afternoon statement that it could raise near-zero short-term interest rates, but in a matter of months and amid an accelerating economy. In its final policy statement of the year, the Fed said that it "can be patient in beginning to normalize the stance of monetary policy."

Stocks took a giant leap on the resulting perception that the Fed won't rush into rate hikes. The Dow soared 288 points, or 1.7%, to 17,356.87.

Thurday's rally is being driven by the same things that have been driving the bull market for years: "low rates and easy money and little in the way of alternatives to stocks" for investors looking to generate acceptable returns, says Bill Hornbarger, chief investment strategist at Moneta Group.

When the Fed does raise rates – it will take things slow – or at least that is what investors are banking on, says Alan Skrainka, chief Investment officer at Cornerstone Wealth Management.

"This move is likely the result of increased confidence that the Fed will raise rates very gradually in light of recent events – mainly the plunge in oil prices and slowing global growth," says Skrainka.

Another reason for the massive stock market rally is investors are reversing earlier bets against the market, or so-called "short covering," says Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Many investors had been shorting the market, or trying to profit when prices fall by borrowing shares with the hope of buying them back later at a lower price. But with the nearly 600-plus point rally in the Dow, that so-called shorting strategy did not work out, so those investors are buying the borrowed shares back now for fear stocks will climb even higher and cost them more losses.

Nick Sargen, senior investment advisor at Fort Washington Investment Advisors, says he's scratching his head over all the attention to the Fed. The central bank, he says, "didn't tell us anything we didn't know before."

Sargen theorizes that the stock investors might be rethinking their initial negative reaction to lower oil prices and may be refocusing on the fact that lower prices at the pump "is a huge positive" for the U.S. and world economy, except for Russia and OPEC.

"For a while the market was focused on the losers from lower oil prices rather than on the winners," says Sargen. "It seems like the market had a few 'bad hair' days and suddenly discovered everything would be okay."

Large-company U.S. stocks are also benefiting from what Hornbarger calls a "crowding in" effect. With the U.S. economy doing better than the rest of the developed world and the dollar strong and corporate America's balance sheets "the best in the world," many investors have "thrown in the towel" on foreign stocks in developed nations and emerging market stocks.

Charles Biderman, CEO of TrimTabs Asset Management, a firm that tracks the cash flows in and out of the stock market and mutual funds, says the main stock market driver is simply "supply and demand."

In the first three days of this week, he says there have been "over $30 billion of new cash takeovers of public companies and stock buybacks." In contrast, there has been "less than $2 billion of new stock offerings" brought to market.

Despite the two-day euphoria, Hornbarger is still warning clients that the suddenly hot market is still "due" for a 10% correction and that they should expect lower returns in the next few years after the big run the past five years.