U.S. stocks cut their losses and moved higher on Wednesday as the market got past one of the big uncertainties heading into year-end. The Federal Reserve signaled a more aggressive unwinding of its monthly bond buying, as expected by the market, and forecast multiple rate hikes on the way next year.
The S&P 500 rose 1.63% to 4,709.85, while the tech-heavy Nasdaq Composite jumped 2.15% to 15,565.58. The Dow Jones Industrial Average added 383.25 points, or 1.08%, to close at 35,927.43. All three were in negative territory for the day before the central bank’s decision.
The Fed announced on Wednesday that it would wind down its asset purchases, a process known as tapering, at a faster pace amid a continued rise in inflation. The Fed will be buying $60 billion per month of bonds starting in January, down from December’s rate of $90 million, and said that it will likely continue that trajectory in the months ahead.
The move comes as the central bank is grappling with the highest inflation level in nearly four decades. The Fed was widely expect to accelerate its taper this month.
This sets the stage for a dramatic policy shift that will clear the way for a first interest rate hike next year. The central bank signaled on Wednesday that its members see three hikes in 2022.
“Now I have seen how high rates are going and how fast it’s going to happen. The uncertainty is removed from the market. From an equity perspective, now they just have to focus on earnings, margins and growth,” said Jim Caron, a chief strategist on the global fixed income team at Morgan Stanley Investment Management.
“It’s kind of a sigh of relief to the equities market who thought it might be much more aggressive. It’s kind of what we were thinking anyway,” he added.
Shares of Apple rose nearly 3%, lifting the market averages and continuing the stock’s recent momentum. Other Big Tech stocks like Microsoft and Netflix also moved higher. Wednesday’s moves marked a reversal from earlier this week, when the Nasdaq underperformed on Monday and Tuesday.
Defensive plays also performed well, with health-care stocks such as UnitedHealth and Amgen rising 3.1% and 2.6%, respectively.
“While the three rate hikes for ’22 projected by the dot plot likely raised more than a few eyebrows, keep …….