Dow Surges To Record High Following Dovish Fed Announcement

Stocks turned in a lackluster performance throughout much of the trading session on Wednesday before skyrocketing in reaction to the Federal Reserve’s monetary policy announcement.

With the late-day rally, the Dow soared to a record closing high, while the Nasdaq and the S&P 500 reached their best closing levels in almost two years.

The Dow saw further upside going into the close, spiking 512.30 points or 1.4 percent on the day to 37,090.24. The Nasdaq shot up 200.57 points or 1.4 percent to 14,733.96 and the S&P 500 jumped 63.39 points or 1.4 percent to 4,707.09.

The surge on Wall Street came after the Fed announced its widely expected decision to leave interest rates unchanged while also confirming plans to pivot to cutting rates next year.

In support of its dual goals of maximum employment and inflation at the rate of 2 percent over the longer run, the Fed said it decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent.

The accompanying statement said the decision came as economic growth has slowed from its strong pace in the third quarter, while inflation has eased over the past year.

The projections provided by the Fed also suggest the central bank will begin cutting rates next year, with the median forecast indicating rates will be lowered to 4.6 percent by the end of 2024.

The median forecast points to rates in a range of 4.50 to 4.75 percent, hinting the Fed plans to cut rates by 25 basis points three times next year.

Following the September meeting, the Fed had forecast raising rates by another 25 basis points this year before lowering rates to a range of 5.0 to 5.25 percent by the end of 2024.

“Additional rate hikes no longer appear to be part of the conversation,” said Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni. “It is all about the pace of cuts from here.”

During his post-meeting press conference, Fed Chair Jerome Powell acknowledged that rate cuts will be a “topic of discussion” at upcoming meetings.

Sector News

Gold stocks showed a substantial move back to the upside following recent weakness, resulting in a 6.4 percent spike by the NYSE Arca Gold Bugs Index.

The rally by gold stocks comes as the price of the precious metal soared in electronic trading on the heels of the Fed announcement.

Considerable strength was also visible among biotechnology stocks, with the NYSE Arca Biotechnology Index surging by 4.3 percent to its best closing level in over three months.

Acadia Pharmaceuticals (ACAD) led the sector higher, skyrocketing by 34.5 percent after winning a patent suit regarding its drug Nuplazid.

Banking, commercial real estate and utilities stocks also showed particularly strong moves to the upside following the Fed announcement.

Most of the other major sectors also moved higher on the day, with airline, housing and networking stocks seeing significant strength.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan’s Nikkei 225 Index rose by 0.3 percent, while China’s Shanghai Composite Index slumped by 1.2 percent.

The major European markets also finished the day narrowly mixed. While the U.K.’s FTSE 100 Index inched up by 0.1 percent, the German DAX Index and the French CAC 40 Index both dipped by 0.2 percent.

In the bond market, treasuries skyrocketed in reaction to the Fed announcement. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, plunged 17.3 basis points to a four-month closing low of 4.033 percent.

Looking Ahead

Reaction to the Fed announcement may continue to impact trading on Thursday, while traders are also likely to keep an eye on reports on weekly jobless claims, retail sales and import and export prices.

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