U.S. Stocks Rally Even As Fed Raises Interest Rates, Signals Further Increases

Stocks moved sharply higher late in the trading session on Wednesday, as traders reacted positively to the Federal Reserve’s monetary policy announcement. With the upward move, the Nasdaq and the S&P 500 reached their best closing levels in four months.

The major averages all finished the day in positive territory, although the Dow inched up just 6.92 points or less than a tenth of a percent to 34,092.96. The Nasdaq surged 231.77 points or 2.0 percent to 11,816.32, while the S&P 500 jumped 42.61 points or 1.1 percent to 4,119.21.

The late-day rally on Wall Street came even as the Federal Reserve announced its widely expected decision to raise interest rates by another quarter point and signaled further rate hikes.

After a two-day meeting, the Fed said it has decided to raise the target range for the federal funds rate by 25 basis points to 4.50 to 4.75 percent.

The latest interest rate hike comes after the central bank raised rates by 75 basis points in November and by 50 basis points in December.

The Fed also said it anticipates ongoing increases in interest rates will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

During his post-meeting press conference, Fed Chair Jerome Powell said the central bank does not believe rates are yet at a sufficiently restrictive policy stance and suggested a “couple of more rate hikes” will be needed to get to that level.

The next monetary policy meeting is scheduled for March 21-22, with CME Group’s FedWatch Tool currently indicating an 81.8 percent chance the Fed will raise rates by another 25 basis points.

Ahead of the Fed announcement, payroll processor ADP released a report showing private sector job growth slowed by more than expected in the month of January.

ADP said private sector employment climbed by 106,000 jobs in January after surging by an upwardly revised 253,000 jobs in December.

Economists had expected private sector employment to increase by 178,000 jobs compared to the addition of 235,000 jobs originally reported for the previous month.

A separate report released by the Institute for Supply Management showed activity in the U.S. manufacturing sector contracted for the third consecutive month in January.

The ISM said its manufacturing PMI dipped to 47.4 in January from 48.4 in December, with a reading below 50 indicating a contraction. Economists had expected the index to edge down to 48.0.

Sector News

Semiconductor stocks turned in some of the market’s best performances on the day, with the Philadelphia Semiconductor Index spiking by 5.2 percent to a five-month closing high.

Chipmaker Advanced Micro Devices (AMD) helped lead the sector higher, skyrocketing by 12.6 percent after reporting better than expected fourth quarter results.

Substantial strength was also visible among transportation stocks, as reflected by the 3.8 percent surge by the Dow Jones Transportation Average.

Software, computer hardware and gold stocks also saw considerable strength, while gold stocks moved sharply lower along with the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan’s Nikkei 225 Index inched up by 0.1 percent, while Hong Kong’s Hang Seng Index jumped by 1.1 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the German DAX Index rose by 0.4 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index both edged down by 0.1 percent.

In the bond market, treasuries moved sharply higher following the Fed’s monetary policy announcement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 13.2 basis points to 3.397 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reacted to the Fed decision, while traders are also likely to keep an eye on the latest economic and earnings news.

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