U.S. stocks rallied Wednesday even after the Federal Reserve pointed to an interest rate hike coming soon, as Microsoft’s quarterly report boosted investor sentiment.
The Dow Jones Industrial Average rose about 320 points, or 0.9%. The S&P 500 added 1.6%. The Nasdaq Composite gained 2.5%.
The Fed said in a statement Wednesday following its policy group’s January meeting that a quarter-percentage-point increase to its benchmark short-term borrowing rate could be coming soon, as market participants expected.
“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the Federal Open Market Committee statement said. The Fed does not meet in February.
However, the Fed did indicate in a separate statement that it would begin shrinking its balance sheet after hiking rates, a further tightening action that many traders may have hoped the central bank would have held off doing right away.
“Clarity on the timing and extent of rate hikes, as well as the degree of balance sheet reduction, should help calm markets,” John Lynch, chief investment officer for Comerica Wealth Management, said.
Shares of banks, which typically benefit from higher interest rates, got a lift from the Fed update. Morgan Stanley and JPMorgan both rose around 2%.
Investors also digested a strong quarterly report from Microsoft and other corporate earnings results.
Shares of Microsoft rose 5% after the company issued better-than-expected quarterly revenue guidance, boosting the three major indexes.
Microsoft’s “conference call went well and ignited the market,” Scott Redler of T3Live said. Whether the stock’s rally holds “will tell us a lot about tech,” he added.
Technology shares gained following Microsoft’s earnings report. Apple, Amazon, Netflix and Nvidia all traded higher. Tesla shares added 5.7%, with the electric vehicle marker slated to report earnings after the bell.
On the downside, Boeing fell 2.6% after the aircraft maker reported positive cash flow for the first time since 2019, but it took a $3.5 billion pre-tax charge on its 787 Dreamliner program.
U.S. stocks are coming off a second consecutive roller-coaster trading session.
The Dow ended Tuesday lower, but was down as much as 818.98 points on the session and briefly traded up by as much as 226.54 points. Those moves came a day after the Dow recovered from a 1,115-point deficit to post a slight gain.
The S&P 500 and Nasdaq Composite also closed well off their session lows on Tuesday, but still lost 1.2% and 2.3%, respectively.
Recent market volatility is unlikely to deter the Fed from implementing as much as four or more interest rate hikes this year, market strategists say.
“It’s premature to assume the latest volatility and weakness, in and of itself, will cause the Fed to blink (e.g., adjust the narrative),” Liz Ann Sonders, Charles Schwab chief investment strategist, said in a note.
All three major indexes are negative in January. The Nasdaq is in correction territory, down more than 14% from its intraday high.
—CNBC’s Patti Domm contributed to this report.
