By Joy Wiltermuth and Mark DeCambre
U.S. stock indexes closed out their best day in two months Wednesday, after the Federal Reserve Chairman Jerome Powell signaled the central bank may announce a pullback of its bond purchases in November and could start to raise interest rates in 2022, with both moves largely expected by market participants.
Investor concerns about financial contagion from a potential default by China’s giant property company Evergrande have somewhat abated, but investors are also watching developments in the U.S. Congress on raising the federal debt ceiling.
How did stock indexes do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.21% climbed 338.48 points, or 1%, closing at 34,258.32.
The S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.11% added 41.45 points, or 1%, ending at 4,395.64.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.82% advanced 150.45 points, or 1%, finishing at 14,896.85.
On Tuesday , the Dow fell 51 points, or 0.15%, to 33,920, the S&P 500 declined 0.08% to 4,354, and the Nasdaq Composite gained 32 points, or 0.22%, to 14,746. The Dow and S&P 500 marked a fourth straight day of losses, which was the worst stretch for the S&P 500 since mid-May.
What drove the market?
Wall Street cheered Wednesday’s Federal Reserve decision to keep its massive bond-buying program and ultralow interest-rate regime in full swing to support financial markets and the economy through the pandemic — for now.
Stocks trimmed some of their gains after Fed Chairman Powell said plans to taper the central bank’s bond buying program could be announced in November after the Fed’s next policy-setting meeting. Fed officials also penciled in an interest-rate increase in 2022.
The Dow and S&P 500 still booked their largest daily percent gains since late July, while the Nasdaq scored its best session advance in about a month, according to Dow Jones Market Data.
Powell said there remains “a range of views” among Fed officials about the state of the U.S. economic rebound, while warning that higher interest rates next year aren’t set in stone , in an afternoon news conference.
“It looks like we are on track for a November tapering announcement,” said Kathy Jones, chief fixed-income strategist at Charles Schwab, in a phone interview. But she also explained that the “dot plots” now implying four rate increases, or a 1% increase, through the end of 2023 would be a “pretty significant rate of increases.”
“Dots are just dots. They are going to move,” she said. “It’s not a done deal, or a forecast, just an estimate,” Jones said.
A number of analysts had pegged November or December as a likely time frame for an official Fed announcement for tapering its monthly purchases of $120 billion in Treasurys and mortgage-backed securities, with an eye toward concluding those purchases at in the middle of next year.
The longer-term outlook for policy interest rates, which currently stand in a range between 0% and 0.25%, now shows benchmark interest rates potentially climbing as high as 1.8% by the end of 2024.
“We’ve been through a move in the dot plots already,” said Giorgio Caputo, head of JO Hambro Capital Management’s multi-asset team, adding that any fits of weakness in stocks this year have been extremely short lived.
“The little dips, the blips, they get bought,” Caputo said, in a phone interview. “The thing is, market liquidity does evaporate when volatility spikes.”