The Dow rose more than 1,000 points Wednesday, the index's biggest point increase ever.
Stocks rose higher despite virtually no news - which may have been a catalyst in its own right.
Investors cheered news of the biggest holiday shopping season in six years.
Donald Trump expressed confidence in the Treasury secretary, Federal Reserve and US economy on Tuesday, moving to calm financial markets further roiled after Bloomberg News reported that the president had discussed firing the central bank's chairman over raising interest rates.
Monday's sell-off, which had both the Dow and S&P 500 flirting with bear territory, followed a freaky Sunday night tweet from Treasury Secretary Steve Mnuchin in which he said he called the chief executives of the six largest banks in the United States and was assured they have "ample liquidity". It had ended Monday's Christmas Eve carnage - when the Dow dropped more than 600 points - exactly 19.8% down from its September peak.
Speaking to reporters in the Oval Office after a Christmas video conference with US troops deployed overseas, Trump also said USA companies were "the greatest in the world" and presented a "tremendous" buying opportunity.
Aides are exploring the possibility of having Trump meet personally with Powell in the new year, a person familiar with the discussions told CNN. The routines of 800,000 federal employees are expected to be disrupted by the shutdown, but essential services will keep running.
U.S. President Donald Trump has marked Christmas with a renewed attack on the central bank over plunging stocks, as he aired a catalogue of grievances in a downbeat gathering at the Oval Office. "They don't have a feel for the Market, they don't understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders".
"They're raising interest rates too fast because they think the economy is so good". He remained bullish on USA companies and their prospects, insisting from the Oval Office on Tuesday: "They have record kinds of numbers". A day earlier, Trump claimed there is a buying opportunity for stocks. "Really a great opportunity to buy". The stock was giving the biggest boost to the S&P and Nasdaq and led the consumer discretionary index.SPLRCD up 1.49 percent.
Also helping Wednesday's rally was a roughly 8 percent jump in oil prices following weeks of steep declines. "Usually they don't last very long, but this could continue till the month ends", Peter Cardillo, chief market economist at Spartan Capital Securities in NY.
Elsewhere, U.S. home price growth slowed in October, a likely effect of higher mortgage rates having worsened affordability and causing sales to fall.
The Dow Jones index surged 1,086 points, or 5 per cent, to 22,878 at 4:00pm (New York time). The current sell-off could also pose a great entry for long-term value investors who are aiming to hold positions between 3 and 5 years.
Home prices have dropped as would-be buyers are struggling to afford homes. Trump nominated Powell previous year to become chairman. Part of Trump's frustration with Powell has been the Fed chair's announcement last week of another hike in the benchmark interest rate, which caused markets to tumble.
Trump flies to Iraq to visit troops for the first time
But almost two years into his presidency, Mr Trump had yet to visit any troops overseas , drawing criticism from various corners. Mr Trump is planning to pull half of the 14,000 United States military from Afghanistan, but USA forces are set to stay in Iraq.