Following its two-day policy meeting, the Fed signaled its inflation target has been met, and its announcement on ending the bond purchases paved the way for three quarter-percentage-point interest rate increases by the end of 2022.
All three main U.S. stock indexes reversed earlier losses and climbed into positive territory. Wall Street extended those gains as Fed Chair Jerome Powell during his news conference struck an upbeat tone about the U.S. economic recovery and expressed willingness to raise interest as necessary to control inflation.
“What the markets are saying is, because the Fed is increasing their taper, maybe they feel inflation is under control,” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta. “They did what was expected. It’s going to add to the credibility for the Fed and that will be – on balance – neutral to positive for the markets.”
Wall Street remains down slightly this week after the S&P 500 index touched a record closing high on Friday, with worries about the new fast-spreading Omicron coronavirus variant giving investors pause.
According to preliminary data, the S&P 500 gained 75.48 points, or 1.63%, to end at 4,708.37 points, while the Nasdaq Composite gained 330.94 points, or 2.17%, to 15,568.58. The Dow Jones Industrial Average rose 390.19 points, or 1.10%, to 35,934.37.
Inflation and higher interest rates have become a major concern on Wall Street in recent months. Data on Tuesday showed producer prices increased more than expected in the 12 months through November, clocking their largest gain since 2010. Last week’s consumer prices data showed the biggest gain in almost four decades.
“You had hedge funds positioned for the worst, in the terms of the worst for equities, coming in to the Fed statement,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. “Today, I think, is a function of sell the expectation and buy the news.”
Technology and healthcare were among the strongest of the 11 S&P 500 sector indexes.
U.S. retail sales rose 0.3% last month, the Commerce Department said, coming in lower than expected as Americans started their holiday shopping early to avoid shortages and paying more for goods.
Apple Inc and Nvidia rallied, and were among the stocks giving the S&P 500 the strongest lift.
Albemarle Corp ended lower after Goldman Sachs downgraded the lithium producer to “sell” from “neutral.”
(Reporting by Noel Randewich in Oakland, Calif.; Additional reporting by Sinead Carew in New York, and by Shreyashi Sanyal and Bansari Mayur Kamdar in Bengaluru; Editing by Maju Samuel and Matthew Lewis)