U.S. Stocks Close Sharply Higher Following Fed Announcement

wallstreet oct03 22sep21 lt

Following the Federal Reserve's highly anticipated monetary policy announcement, stocks closed sharply higher during trading on Wednesday. The major averages remained firmly positive on the heels of the Fed announcement after showing a strong move to the upside in morning trading.

The major averages all posted strong gains on the day. The Dow jumped 338.48 points or 1 percent at 34,258.32, the Nasdaq surged up 150.45 points or 1 percent to 14,896.85 and the S&P 500 shot up 41.45 points or 1 percent to 4,395.64.

The early rally on Wall Street came as traders picked up stocks at reduced levels following the slump seen during the month of September.

With the upward move on the day, the Dow bounced off its lowest closing level in three months, while the S&P 500 rebounded from a two-month closing low.

Stocks held on to strong gains even as the Fed hinted tapering of its asset purchases could begin in the near future amid continued progress towards it goals of maximum employment and price stability.

The Fed said in the announcement of its latest monetary policy decision that a "moderation in the pace of asset purchases may soon be warranted" if progress towards its dual goals continues broadly as expected.

During his post-meeting press conference, Fed Chair Jerome Powell indicated the central bank could begin tapering its asset purchases as soon as its next meeting in early November.

"While no decisions were made, participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate," Powell said.

Powell said substantial further progress has been achieved with regard to the Fed's inflation goal, while "the test for substantial further progress on employment is all but met."

The comments about tapering asset purchases came as the Fed announced its widely expected decision to keep the target range for the federal funds rate at 0 to 0.25 percent.

The Fed also reiterated that it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with maximum employment and inflation is on track to moderately exceed 2 percent for some time.

However, the latest projections from the Fed officials now predict interest rates will be raised next year compared to previous forecasts calling for the first rate hike in 2023.

Fed officials also downwardly revised forecasts for U.S. GDP growth in 2021 to 5.9 percent from 7.0 percent, while forecasts for GDP growth in 2022 were upwardly revised to 3.8 percent from 3.3 percent.

Sector News

Airline stocks moved sharply higher over the course of the session, with the NYSE Arca Airline Index soaring by 3.1 percent to its best closing level in over a month.

Substantial strength was also visible among oil stocks, as reflected by the 3 percent spike by the NYSE Arca Oil Index.

The strength among oil stocks came as the price of crude oil for November delivery jumped $1.74 to $72.23 a barrel following the release of a report showing another weekly drop in U.S. crude oil inventories.

Financial stocks also turned in a strong performance on the day, driving the NYSE Arca Broker/Dealer Index and the KBW Bank Index up by 2.2 percent and 2 percent, respectively.

Natural gas, steel and semiconductor stocks also saw considerable strength, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index slid by 0.7 percent, while China's Shanghai Composite Index rose by 0.4 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the German DAX Index jumped by 1 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index surged up by 1.3 percent and 1.5 percent, respectively.

In the bond market, treasuries moved modestly lower in reaction to the Fed announcement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.2 basis points to 1.336 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction the Fed announcement, although traders are also likely to keep an eye on the weekly jobless claims report.

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