Dow rallies 350 factors and is properly on its method to ending a 4-day shedding streak following the Fed’s choice
U.S. stocks held most of their gains on Wednesday after the Federal Reserve announced that it would soon be scaling back some of the monetary stimulus to prop up the economy during the pandemic.
The Dow Jones Industrial Average rose 350 points, or 1%, and is well on its way to breaking a four-day losing streak. The blue-chip Dow jumped 520 points at its session high. The S&P 500 was up 1% on a 3.3% rise in the energy sector. The Nasdaq Composite gained 0.8%.
“If progress continues broadly as expected, the committee believes that a slowdown in asset purchases may soon be warranted,” the Fed statement said after the meeting. The Federal Open Market Committee decided unanimously to anchor short-term interest rates close to zero.
Since the beginning of the Covid crisis, the central bank has been buying US government bonds and mortgage-backed securities worth $ 120 billion every month.
“While there may be a taper announcement in November, it just reflects that they didn’t do it today, just a still overly moderate committee,” said Peter Boockvar, chief investment officer, Bleakley Advisory Group.
Shares peaked after Fed chairman Powell said the central bank’s further progress test on its inflation mandate was passed and “many” members believe the test on employment mandate has been passed as well.
For his part, Powell said, “My own view is as good as fulfilling the test of substantial further employment advancement.” This suggests that the Fed is on the verge of easing stimulus.
“The market is already pricing in tapering and has immediately turned its attention to the date of a possible rate hike and the pace of the rate hike, which, if anything, is a little more modest than the markets feared,” said Seema Shah. Chief Strategist at Principal Global Investors.
September, a historically changeable month for stocks, posted losses with high averages. The S&P 500 is down 2.8% so far in September, including a 1.7% drop on Monday for its worst day since May. Key averages tried to rebound on Tuesday but failed as the Dow and S&P 500 ended in red for the fourth day in a row. The Dow was down about 3% in September.
At the center of investor concerns is the competitive Chinese real estate developer Evergrande, who faces a potential default if it cannot make millions of dollars in debt payments on US dollar-denominated bonds this week. Evergrande shares in Hong Kong have fallen nearly 90% since July 2020 as China cracks down on property speculation. Investors fear a decline in global economic growth if China slows its real estate market too hard or lets Evergrande fail.
Adding to the mood over night was Evergrande’s news that its real estate group would be punctually paying interest on a mainland-traded yuan bond.
Commodity-related stocks led the comeback on Wednesday as fears about the Evergrande impact subsided. Devon Energy rose more than 7% while APA, Diamondback Energy and Marathon Oil all gained about 5%. China-exposed Wynn Resorts rebounded more than 2%.
“We’re still in a position where stocks will ultimately rebound strongly because if Evergrande isn’t really having a seismic impact on the US economy, US fundamentals are in good shape,” said Fundstrat’s Tom Lee on CNBCs “Quick Money” Tuesday night.
FedEx stock slumped 8% after the mailer’s earnings fell last quarter due to rising labor costs. FedEx also lowered its forecast for the full year.