U.S. Stocks Close Sharply Higher Following Late-Day Volatility

After showing a strong move to the upside in early trading on Wednesday, stocks saw substantial volatility following the Federal Reserve’s monetary policy announcement. The major averages initially pulled back sharply in reaction to the Fed announcement but rallied strongly going into the close.

The major averages finished the session at their best levels of the day. The Dow jumped 518.76 points or 1.6 percent to 34,063.10, the Nasdaq soared 487.93 points or 3.8 percent to 13,436.55 and the S&P 500 surged 95.41 points or 2.2 percent at 4,357.86.

The late-day volatility came after the Fed announced its widely expected decision to raise interest rates for the first time since December of 2018 in an effort to combat inflation at 40-year highs.

The Fed said it has decided to raise the target range for the federal funds rate by 25 basis points to 0.25 to 0.5 percent.

The central bank also predicted ongoing rate hikes will be appropriate, with the Fed’s latest projections pointing to an interest rate of 1.9 percent by the end of the year.

Additionally, the Fed said it expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.

“With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong,” the Fed said.

The decision to raise rates by 25 basis points was nearly unanimous, although St. Louis Fed President James Bullard preferred a 50 basis point increase.

The rate hike came even as the Fed acknowledged Russia’s invasion of Ukraine is “causing tremendous human and economic hardship.”

Traders may have used the initial pullback in reaction to the Fed announcement as another opportunity to pick up stocks at relatively reduced levels.

Optimism about a potential diplomatic solution to the ongoing Russia-Ukraine conflict also generated additional buying interest.

Ukrainian President Volodymyr Zelenskyy said during an address to the nation that the positions in the negotiations were beginning to “sound more realistic,” while Russian Foreign Minister Sergey Lavrov told the BBC there was “some hope of reaching a compromise.”

Indications China is willing to provide more support for the slowing economy also helped ease concerns about the global economic outlook.

The Fed announcement largely overshadowed the day’s economic data, including a Commerce Department report showing a modest increase in retail sales in the month of February.

Sector News

Airline stocks extended the rally seen in the previous session, resulting in a 5.5 percent spike by the NYSE Arca Airline Index.

Substantial strength was also visible among brokerage stocks, as reflected by the 5.1 percent surge by the NYSE Arca Broker/Dealer Index.

Semiconductor stocks also saw continued strength, with the Philadelphia Semiconductor Index jumping by 5 percent, climbing further off the nearly ten-month closing low set on Monday.

Chipmaker Micron Technology (MU) helped to lead the sector higher after Bernstein upgraded its rating on the company’s stock to Outperform from Underperform.

Banking, biotechnology and computer hardware stocks also saw considerable strength on the day, while oil service stocks bucked the uptrend amid a continued decrease by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved sharply higher during trading on Wednesday. Japan’s Nikkei 225 Index jumped by 1.6 percent, China’s Shanghai Composite Index spiked by 3.5 percent and Hong Kong’s Hang Seng Index skyrocketed by 9.1 percent.

The major European markets also showed substantial moves to the upside on the day. While the U.K.’s FTSE 100 Index shot up by 1.6 percent, the French CAC 40 Index and the German DAX Index surged by 3.7 percent and 3.8 percent, respectively.

In the bond market, treasuries regained ground after the rate hike sparked a sell-off but still closed lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.8 basis points to 2.188 percent after reaching a high of 2.246 percent.

Looking Ahead

While the interest rate hike may continue to impact trading on Thursday, traders are also likely to keep an eye on reports on initial jobless claims, housing starts and industrial production.

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