By Adam Shell, USA Today
NEW YORK - The stunning stock rally of 2013 continued its
torrid pace Wednesday with both the Standard & Poor's 500 and Dow
industrials closing at fresh all-time highs after the Federal Reserve surprised investors and said it will continue its market-friendly bond-buying program.
Dow Jones industrial average finished up 146.44, 1%, to 15,676.94. The S
& P 500 ended up 37.94 points, 1%, to 1,725.53. The tech-laden
Nasdaq composite index closed up 20.67 points, 1.2%, to 3,783.64 -- its
highest close since Sept. 22, 2000.The small-stock Russell 2000 also
finished at a record high 1.076.06, up 9.68 points, or 0.9% for the day.
In a statement following a two-day policy meeting, the Fed said it would continue to buy $85 billion
per-month in long-term U.S. Treasuries and mortgage-backed bonds to
"help make broader financial conditions more accommodative" to promote a
stronger economic recovery. The market was expecting the Fed to start
reducing its asset purchases by roughly $10 billion to $15 billion per
The move by the Fed caught Wall Street off
guard, says Erik Davidson, deputy chief investment officer at Wells
Fargo Private Bank. "No taper was not priced in," says Davidson. "The
market got a head fake." The thought of a longer period of "free money"
resulted in the bullish market reaction, he adds.
every asset class moved higher on the news. Both the S&P 500 and
Dow, which were down prior to the Fed statement, hit record highs after
the announcement. The tech-filled Nasdaq rose to a fresh 13-year high.
surprise decision also caused a major bond market rally, causing the
yield on the 10-year Treasury note to dip to 2.7%, down from 2.85%
Tuesday. Gold also soared, rising more than $56 per ounce, or 4.3%, to
around $1,365 per ounce. Oil shot up too, with a barrel of crude jumping
more than $2.80 per barrel, 2.7%, to nearly $108.30 a barrel.
S&P 500, a broad measure of the U.S. stock market, climbed above
its record Aug. 2 closing high of 1,709.67. Heading into today's
session, the large-company stock index was up 19.5% for the year and up
almost 153% from its March 9, 2009, bear-market low.
have been climbing higher in recent weeks amid better economic data,
fading fears of a imminent attack on Syria as well as investors coming
to grips with the idea that the Fed will soon start to "taper" its $85
billion in monthly asset purchases. The Fed's so-called quantitative easing policy,
or QE, which is designed to push borrowing costs down to boost economic
growth, has been in place for more than four years and has been
credited for fueling a boom in the stock market.
Q&A: What exactly is quantitative easing?
FED STATEMENT: Read what the Federal Reserve had to say
Street was expecting the Fed to start dialing back on its asset
purchases after the meeting but at a conservative pace, with initial
cutbacks no more than $15 billion expected.
Markets were also
reacting to the Fed's updated projections for economic growth and
unemployment, which will offer clues as to when the central bank will
start to officially tighten policy and hike short-term interest rates,
which are currently targeted around 0%.
Wall Street was also
expecting the Fed to adjust its "thresholds" related to its zero
interest rate policy. The Fed, however, reiterated that it would not
start to raise short-term rates until the unemployment rate, currently
at 7.3%, drops to at least 6.5%.
How the stock market reacts to tapering in the days and weeks ahead will be instructive.
past two market corrections, or drops of 10% or more, which occurred in
2011 and 2010 occurred after the Fed ended its first two rounds of bond
buying. The market also suffered two so-called "taper tantrums" in June
and August, when the S&P 500 fell 5.8% and 4.6%, respectively,
after the Fed hinted strongly that it was getting ready to start dialing
back on its current round of asset purchases.
On Tuesday, the
Russell 2000, an index of small-company stocks, also hit a fresh record
high, while the Nasdaq composite climbed to a fresh 13-year high.
Heading into Wednesday's trading session the Dow Jones industrial
average was just 129 points shy of its May 2 record high of 15,658.36.