Wall St higher, Fed to end bond purchases

| December 15, 2021

Wall Street has ended sharply higher after the Federal Reserve said it would end its pandemic-era bond purchases in March as it exits from policies enacted at the start of the health crisis.

Following its two-day policy meeting, the Fed signalled its inflation target has been met, and its announcement on ending the bond purchases paved the way for three quarter-percentage-point interest rate increases by the end of 2022.

All three main US stock indexes reversed earlier losses and climbed into positive territory. 

Wall Street extended those gains as Fed chairman Jerome Powell during his news conference struck an upbeat tone about the US economic recovery and expressed willingness to raise interest rates as necessary to control inflation.

“What the markets are saying is, because the Fed is increasing their taper, maybe they feel inflation is under control,” Tom Martin, senior portfolio manager at Globalt Investments in Atlanta, said. 

“They did what was expected. It’s going to add to the credibility for the Fed and that will be – on balance – neutral to positive for the markets.”

The S&P 500’s sharp rise on Wednesday erased almost all of its losses from earlier this week and left it just short of its record-high close on Friday.

For the session, the Dow Jones Industrial Average rose 1.08 per cent to end at 35,927.43 points, while the S&P 500 gained 1.63 per cent to 4,709.85.

The Nasdaq Composite climbed 2.15 per cent to 15,565.58.

Volume on US exchanges was 12.2 billion shares, strong compared with the 11.6 billion average over the last 20 trading days.

Inflation and higher interest rates have become a major concern on Wall Street in recent months. 

Data on Tuesday showed producer prices increased more than expected in the 12 months through November, clocking their largest gain since 2010. 

Last week’s consumer prices data showed the biggest gain in almost four decades.

“You had hedge funds positioned for the worst, in terms of the worst for equities, coming in to the Fed statement,” Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, said. 

“Today, I think, is a function of ‘sell the expectation and buy the news’.”

Among the 11 S&P 500 sector indexes, technology jumped 2.7 per cent and healthcare rallied 2.1 per cent.

Apple climbed 2.85 per cent and Nvidia rallied 7.49 per cent, with the two lifting the S&P 500 more than any other stocks.

The Philadelphia Semiconductor index jumped 3.7 per cent.

Albemarle ended 1.67 per cent lower after Goldman Sachs downgraded the lithium producer to “sell” from “neutral”.