By Joy Wiltermuth and Mark DeCambre
Nasdaq Composite soars 3.8% for best daily percentage gain since Nov. 2020
U.S. stocks rallied for a second day in volatile trade Wednesday, with the Dow swinging nearly 700 points from session lows, after the Federal Reserve pulled the trigger on its first interest rate hike since 2018, while indicating more rate increases and balance sheet reduction will follow.
Investors also watched Ukraine-Russia developments and a quick retreat in oil prices from recent highs.
Stocks added to gains from the previous sessions, after the Dow advanced 599 points, or 1.8%, while the S&P 500 jumped 2.1% and the Nasdaq Composite surged 2.9%.
What drove markets
The spotlight was squarely on aggressive tones from the Federal Reserve, which delivered a quarter-percentage point interest-rate increase, as expected, and kicked off a new path to tighter monetary policy.
The Fed indicated its policy rate could hit 1.9% by the end of the year, climb to 2.8% in 2023 and stay at that level in 2024. Balance sheet reduction also could start in May, as the central bank looks to tighten financial conditions to tame inflation.
See: Fed raises rates and plots strategy of steady further increases
Chairman Jerome Powell vowed not to let inflation become entrenched in the economy, in an afternoon news briefing. He also said the economy was very strong, with healthy growth expected, despite higher oil prices and the uncertain nature of any potential financial spillover from Russia's invasion of Ukraine.
While Powell warned it will take longer than previously expected to bring inflation down to the Fed's target 2% annual rate, he indicated no looming recession risks.
"Of course, the underlying conditions that led to the need to balance all of these conflicting messages was clearly that the Fed kept policy too easy for too long, but to be fair, much of the rapid increase in inflation and slowdown in growth were beyond most observer's outlooks a short while ago," BlackRock's Rick Rieder, chief investment officer of global fixed income, said in emailed comments.
Jason Brady, president and CEO at Thornburg Investment Management, said with employment and GDP fairing well, that "inflation worries are at the center of the bullseye." But he also criticized the Fed's guidance on its plans for reducing its balance sheet as "falling short," in emailed comments.
Read:What happens to money when the Fed starts shrinking its balance sheet?
Investors expected the Fed to forecast "growth is going down, inflation is moving up interest-rate increases are likely to be more aggressive," said Anthony Saglimbene, global market strategist at Ameriprise Financial, in a phone interview.
With that backdrop, Saglimbene said investors have been "nibbling" at higher-quality stocks that have been battered in recent weeks, particularly with oil prices declining sharply this week.
A sharp drop by oil futures also was credited with lifting risk appetite, with U.S. benchmark West Texas Intermediate crude and global benchmark Brent crude both plunging back below $100 a barrel after a surge last week to 14-year highs. U.S. oil futures settled 1.5% lower Wednesday at $95.04 a barrel Wednesday.
President Joe Biden took to Twitter on Wednesday to criticize high gas prices despite this week's tumble in oil prices, warning that oil companies shouldn't "pad their profits at the expense of hardworking Americans."
Biden also delivered a brief address on developments in Ukraine, announcing $800 million in additional military aid to Kyiv, after Ukrainian President Volodymyr Zelensky pressed U.S. Congress for a no-fly zone, more military aid and called for additional sanctions on Russia, even as diplomatic talks between Russia and Ukraine to end the war continued.
In economic reports, sales at U.S. retailers slowed sharply in February, rising 0.3%, and Americans probably bought fewer goods like groceries, consumer electronics and furniture after factoring in high inflation. Economists polled by The Wall Street Journal had forecast a 0.4% advance.
The previously reported 3.8% increase in sales in January, however, was raised to 4.9%, the government said Wednesday.
Which companies were in focus?
How did other assets do?
(END) Dow Jones Newswires
March 16, 2022 16:33 ET (20:33 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.