Markets surged on Thursday and these hard-hit stocks could finally have their day in the sun

The stock market continued its volatile week on Thursday, but investors rejoiced to see major market benchmarks regain their losses from Wednesday. Most factors affecting market sentiment are not going to change quickly, and with earnings season still weeks away, many traders are using technical measures and other short-term strategies to guide their decisions. Earnings for the S&P500 ( ^GSPC 0.51% ), Dow Jones Industrial Average (^ DJI 0.44% )and Nasdaq Compound ( ^IXIC -0.16% ) were between 1% and 2%.

Index

Percent Daily Change

Daily point change

Dow

+1.02%

+349

S&P

+1.43%

+64

Nasdaq

+1.93%

+269

Data source: Yahoo! Finance.

The market sector that has captured the most attention from investors today is the one that has been struggling for a very long time. Marijuana stocks have been hit hard over the past year, but news from Washington could point to a long-awaited step that will transform the nature of the business.

Yes, cannabis can

The big moment for marijuana stocks came mid-afternoon, when reports confirmed earlier rumors that the US House of Representatives would put a bill on the floor for a vote next week. .

The legislation would decriminalize cannabis at the federal level. Even though the Justice Department has largely been willing to allow states to regulate medical and recreational cannabis within their borders without too much federal enforcement, marijuana’s status on the list of federally controlled substances has had other impacts that limited the growth of the industry. For example, it has been difficult for cannabis growers and retailers to access traditional financial services like banking due to fears that financial institutions will violate the terms of their charters if they work with companies that technically violate federal law.

Image source: Getty Images.

In addition, the proposed bill would impose taxes that would be used to fund community support programs for areas that have suffered disproportionate effects from drug enforcement measures. It would also retroactively remove criminal convictions for those charged with federal crimes related to marijuana possession.

Big moves for pot stocks – but will they hold?

The news definitely helped downed marijuana stocks recover. At the end of the ordinary session, Tilray (TLRY 22.81% ) jumped 22%, while canopy growth and Aurora Cannabis both increased by 11%. Small-scale cannabis growers also saw big gains, helping to send the ETFMG Alternative Harvest ETF up 8% on the day.

Gains continued in after-hours trading. ETF Alternative Harvest was up another 5%, while Tilray added another 16% gain and Canopy was up another 11%. Aurora was up 12% after hours at 5:30 p.m. ET.

Despite the sharp rise in marijuana stocks, investors should remember that the industry has gone this route once before. The House has actually approved a bill similar to this in the past, only to see it defeated in the Senate. There are also questions about whether President Joe Biden would sign a bill even if it passed through both houses of Congress.

Even with the gains, many marijuana stocks are still down 50% to 75% or more from where they were just a year ago and even further below their all-time highs. This might have given them some relief from this news, but long-term investors should still exercise caution in the space.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.