S&P 500 closes at record after Fed says economy is strong enough for it to slow pandemic bond buying

Stocks rose to new records on Wednesday after the Federal Reserve made its long-anticipated announcement to slow the monthly bond purchases the central bank implemented during the pandemic.

Major averages climbed steadily into the green as the central bank said it will begin to scale back the bond buying later this month and reiterated that it would be in no rush to raise interest rates after finishing the taper next year.

The Dow Jones Industrial Average rose 104.95 points to 36,157.58, after being down more than 160 points earlier in the session, and closed at a new record. The S&P 500 traded up 0.65% to 4,660.57 to a new all-time high. The Nasdaq Composite added 1% to 15,811.58 and closed at a record. This is the fourth session in a row that all three major averages closed at new highs.

The Russell 2000 rose 1.8% to 2,404.28 and notched a record close. The small-cap benchmark is up 4.7% this week.

The Fed said it will begin tapering bond purchases “later this month” and will reduce buying by $15 billion a month, putting it on track to end the quantitative easing by the middle of next year. This timeline and amount was in line with expectations. However, the Fed said it is prepared to alter the pace of purchases if warranted by changes in the economic outlook.

The central bank also subtly reframed its stance on inflation, acknowledging that price increases have been more rapid and persistent than central bankers had expected. However, the Fed’s statement still characterized the rising prices as “transitory,” which could push the timeline for interest rates hikes further into the future.

“Our decision today to begin tapering our asset purchases does not imply any direct signal regarding our interest rate policy. We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate,” Federal Reserve Chairman Jerome Powell said his post-meeting news conference Wednesday afternoon.

“The fact they continue to describe inflation as transitory suggests they’re going to continue to stay lower for longer than many are anticipating,” said Michael Arone of State Street Global Advisors.

Powell said the central bank is changing monetary policy appropriately. “I don’t think that we’re behind the curve. I actually believe that policy is well-positioned to address the range of plausible outcomes, and that’s what we need to do,” Powell said.

The “Fed meeting was unsurprising insofar as they are backed into a corner where they can’t really raise rates into slowing growth and abating inflationary pressures as base effects from lockdowns fade,” said Mark Yusko, CEO & CIO of Morgan Creek Capital Management.

A slew of corporate earnings and announcements jolted certain equities on Wednesday. Lyft jumped 8.2% on strong third-quarter results and CVS Health rose 5.7% on better-than-expected earnings.

But Zillow fell 24.8% after announcing it will close its home buying and flipping business.

Shares of Bed Bath & Beyond rose on a partnership announcement with Kroger but the 15.2% surge that followed was likely fueled by a short squeeze.

Activision shares tumbled, falling about 14.1% after it said the launch of two games would be delayed. The company also issued a weaker holiday outlook though it did beat profit estimates for the quarter.

Strong earnings have helped lift the market back to records. Of the S&P 500 companies that have reported so far this earnings season, 80.9% of them have beat consensus expectations, according to FactSet. That’s despite ongoing supply chain disruptions, labor challenges, commodity inflation, central bank policy and Covid risk.

“Stocks are like the Energizer Bunny, as they continue to soar to new highs and show no signs of tiring,” said Ryan Detrick, chief market strategist for LPL Financial. “We understand all of the worries out there, but the bottom line is earnings continue to come in way better than expected and are helping to justify stocks are current levels.”

Wednesday’s ADP report showed that private job creation rose in October, thanks to a burst in hiring in the hospitality sector. Companies added 571,000 for the month, beating the 395,000 Dow Jones estimate and just ahead of September’s downwardly revised 523,000. It was the best month for jobs since June.