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 While the Fed's move came as a surprise to many in the market, it
confirmed that the U.S. economy was on firmer footing and put to
rest the question of when the Fed would begin to scale back its
bond-buying program, a relief to some investors, analysts said.
"This is a vote of confidence in the economy and represents the
first step toward monetary policy normalization," said David Joy,
chief market strategist at Ameriprise Financial, in Boston.
The central bank said it would reduce its monthly asset purchases by
$10 billion to $75 billion, while it also indicated that its key
interest rate would stay at rock bottom even longer than previously
promised. It said it "likely will be appropriate" to keep overnight
rates near zero "well past the time" that the U.S. jobless rate
falls below 6.5 percent.
Yet the decision to move now rather than later pointed to better
prospects for the U.S. economy and the labor market. It also marked
a turning point for the largest monetary policy experiment ever.
Stocks extended losses just after the announcement, but quickly
turned higher and began rallying. The day's move marked the biggest
swing from the day's high to the low for the S&P 500 in two years.
All 10 S&P 500 sector indexes ended higher, with all but information
technology <.SPLRCT> gaining more than 1 percent, and the S&P 500
financial index <.SPSY> rising 2.4 percent.
The Dow Jones industrial average <.DJI> surged 292.71 points or 1.84
percent, to end at 16,167.97, a record closing high. The S&P 500
<.SPX> gained 29.65 points or 1.66 percent, to finish at 1,810.65,
also a record closing high. The Nasdaq Composite <.IXIC> climbed
46.384 points or 1.15 percent, to close at 4,070.064.
Fed Chairman Ben Bernanke began hinting at a reduction in the
stimulus back in May. The issue of when the Fed would make its move
had been a source of uncertainty for markets since then. The Fed
surprised markets three months ago by choosing not to reduce its
third round of quantitative easing.
Most surveys had forecast the move would occur after December, but
recent strong economic data seemed to suggest that the timeline
could be pushed up.
"Janet Yellen's imprint is on this move, and that's very good for
the markets," said Quincy Krosby, market strategist at Prudential
Financial, in Newark, New Jersey, in reference to the Fed's vice
chair and President Barack Obama's nominee to succeed Bernanke in
the Fed's top job. "It's clear from moves in bonds and equities that
the markets discounted this in September."
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The CBOE Volatility Index or VIX <.VIX>, Wall Street's barometer of
anxiety, slid 14.9 percent to end at 13.80.
Energy companies' stocks helped lead both the Dow and the S&P 500
higher as oil prices gained. Shares of Exxon Mobil XOM.N> gained 2.9
percent to close at $99.54, after hitting an all-time intraday high
of $99.95. <ID:L2N0JX2CE>
Shares of Lennar Corp <LEN.N> jumped 6.3 percent to $37.43 after the
No. 3 U.S. homebuilder reported a 32 percent jump in fourth-quarter
profit. Data on Wednesday showed that U.S. housing starts surged to
the highest in nearly six years in November, a sign of strength in
the housing market.
Tech underperformed the broader market, with shares of Jabil Circuit
Inc <JBL.N> tumbling 20.5 percent to $15.67 a day after it forecast
current-quarter results way below Wall Street's estimates. The
outlook weighed on other companies in the technology space,
including Apple Inc <AAPL.O>, which slipped 0.8 percent to $550.77.
Shares of Ford Motor Co <F.N> dropped 6.3 percent to $15.65 after
the No. 2 U.S. automaker warned on Wednesday that the cost of
launching new vehicles and a deteriorating Venezuelan economy would
take a bite out of its 2014 pretax profit.
Volume was well above average for the month. About 8.1 billion
shares changed hands on U.S. exchanges, above the 6.1 billion
average so far this month, according to data from BATS Global
Markets.
Advancers outnumbered decliners on the New York Stock Exchange by a
ratio of about 4 to 1. On the Nasdaq, about 18 stocks rose for every
seven that fell.
(Additional reporting by Herbert Lash
and Steven Johnson; editing by Nick Zieminski and Jan Paschal)
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