Stocks shook off early losses Tuesday and turned higher on a surprise pickup in demand for oil.
News from the government that the nation's oil inventory fell by more than 8 million barrels the past week sent the price of crude, and then stocks, higher as investors bet that the slide in energy stockpiles is a sign of an improving economy.
The Dow Jones industrial average, down as much as 86 points on economic concerns before the oil report, was up at midday. The other big market indexes also turned higher.
Stocks have zigzagged all week as investors were torn between worries about consumer spending and signs that the economy, while still extremely week, is showing improvement. So the surge in oil demand was reassuring.
But there is still plenty of caution among investors. While stocks recovered, Treasury prices held on to most of their gains. Treasurys are a safe-haven investment in a struggling economy.
Analysts say financial markets are likely to bounce around in the coming weeks as investors try to reconcile their hopes for an economic recovery with the reality that it might not come as fast or be as strong as many people expected.
"Volatility is creeping up," said Brian Nick, investment strategist at Barclays Wealth. said "For a while we were seeing volatility steadily declining and maybe we thought we were completely out of the woods when we were not completely out of the woods."
Bond prices rose as investors were drawn to the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.48% from 3.52% late Tuesday. It was trading at about 3.44% before the oil report.
In a sign of the market's uneasiness, the Chicago Board Options Exchange's Volatility Index, also known as Wall Street's fear gauge, rose more than 3%. The VIX stands at 27.1, above its historical average of 18-20. But it's still well below the record 89.5 it hit in October at the height of the financial crisis.
Investors received more insight into cost-conscious consumers as BJ's Wholesale Club said its second-quarter profit dipped 4% and sales declined because of falling gasoline prices. Still, the warehouse-club's results beat analysts' estimates and it raised its full-year profit outlook.
Deere, the world's largest maker of farm equipment, reported a 27% drop in its fiscal third-quarter profit, as the global economic slowdown depressed sales of its products. But the results beat analyst expectations.
The dollar was mixed against other major currencies. Gold prices rose, while other metals prices fell.
Overseas, Japan's Nikkei stock average fell 0.8%. In Europe, most indexes finished flat. Britain's FTSE 100 was up 0.08%, Germany's DAX index was down 0.36%, while France's CAC-40 fell 0.01%.