The S&P 500 rallied 5.0% on Wednesday from what many believed to be extremely oversold conditions on a short-term basis. Rebounding oil prices ($46.13/bbl, +$3.45, +8.1%), strong holiday sales, and some short covering helped drive the S&P 500 to its best one-day gain since March 2009.

The Dow Jones Industrial Average gained 5.0%, the Nasdaq Composite gained 5.8%, and the Russell 2000 gained 5.0%.

The S&P 500 overcame an early dip into negative territory with investors adopting a risk-on sentiment. In addition, rather than selling into the close, the benchmark index departed from the recent trend and accelerated its advance in the last hour of trading.

Risk-on sentiment was on full display with all 11 S&P 500 sectors finishing with gains. The cyclical consumer discretionary (+6.3%), energy (+6.2%), and information technology (+6.1%) groups outperformed the broader market.

Amazon (AMZN 1470.90, +126.94, +9.5%) and retail stocks, in particular, led the consumer discretionary space higher. The SPDR S&P Retail ETF (XRT 40.65, +2.20) rose 5.7%.

Amazon announced a record-breaking holiday season, and MasterCard's SpendingPulse report noted that holiday sales from November 1 through December 24 showed the strongest year-over-year growth rate since 2011, resulting in a new record for dollars spent. 

Demand for U.S. Treasuries faded as investors flocked to riskier assets. Consequently, the 2-yr yield gained three basis points to 2.60%, and the 10-yr yield gained five basis points to 2.80%. The U.S. Dollar Index rose 0.5% to 97.07 

Wednesday's sharp rally in equities caused the CBOE Volatility Index (VIX 30.41, -5.66) to surrender nearly six points. The decline pressured the volatility gauge to its closing level from Friday.

Reviewing Wednesday's economic data, which included the S&P Case-Shiller Home Price Index for October:

• The S&P Case-Shiller Home Price Index for October (Briefing.com consensus 5.0%) increased 5.0%, down from a revised increase of 5.2% in September (from 5.1%).

Looking ahead, investors will receive several economic reports on Thursday: New Home Sales for November, the weekly MBA Mortgage Applications Index, the weekly Initial and Continuing Claims Report, the FHFA Housing Price Index for October, and the Conference Board's Consumer Confidence Index for December.

• Nasdaq Composite -5.1% YTD
• Dow Jones Industrial Average -7.5% YTD
• S&P 500 -7.7% YTD
• Russell 2000 -13.4% YTD