By Anora Mahmudova, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks rallied Wednesday as
markets interpreted the Federal Reserve's decision to begin the
tapering of bond purchases in January as confidence in the
underlying strength of the economy.
The Fed policymakers voted to reduce monthly asset purchases to
$75 billion from $85 billion, citing improvement in the outlook for
the economy.
Dow Jones Industrial Average (DJI) jumped 228 points, or 1.5%,
to 16,105.40. The S&P 500 index (SPX) rallied 24 points, or
1.3% to 1,805.84, within a hair's breadth of its all-time high.
Nasdaq Composite (RIXF) was up 32 points or 0.8% to 4,055.70.
All ten main sectors on the S&P 500 were higher with
financials and health care stocks leading the gains. Nasdaq's rally
was somewhat hampered by Apple Inc., (AAPL) which fell 1.1%.
The Federal Open Market Committee stressed its commitment to low
short-term interest rates and added new language that it plans to
maintain the target Fed funds rates "well past the time that the
unemployment rate declines below 6.5%."
Earlier, housing starts data showed that Americans built more
new homes than expected in November, shrugging off rising mortgage
rates. The pace at which new homes were built soared to a
seasonally adjusted annual rate of 1.09 million, the highest rate
since February 2008, with surges for single-family homes and
apartments, the government reported Wednesday.
Better-than-expected housing data sent the S&P 500
home-builders index up 4.8%, as Lennar Corp. (LEN), D.R. Horton,
Inc (DHI) and PulteGroup, Inc (PHM) are among the best-performing
stocks on Wednesday.
"Everyone was focusing on the wrong animal, they were betting on
whether the Fed is hawkish or dovish, but they missed the fact that
the Fed is bullish on the economy," said Burt White, chief
investment officer at LPL Financial.
"Essentially the Fed made a trade: it traded liquidity -- or
shaving off $10 billion a month -- for a boost in confidence.
Changing the unemployment expectations to 6.5% it committed to
keeping low raters for longer," he added.
* Comment: Joe Bell, senior equity analyst with Schaeffer's
Investment Research thinks markets are rewarding the clarity: "It
is a good sign that markets are reacting positively to news that
the economy is in a good shape and improving. The Fed's decision is
data driven, so if it decided to taper it is because it is
confident about the recovery in the economy."
* Today's movers & shakers: Lennar Corp. shares rose 3%
after fiscal fourth-quarter profits and revenues beat estimates.
Shares of Jabil Circuit, Inc fell 20% after earnings and outlook
fell short of Wall Street's expectations. Ford Motor Co shares slid
5% as the car maker lowered its 2014 outlook. Target Corp. shares
rose 2.4% after the retailer's chief executive, Gregg Steinhafel,
said he was pleased with Target's holiday performance and
introduced a round of "last minute" sales. FedEx Corp shares fell
0.8% after earnings missed expectations. Shares in Apple Inc
dropped 1% hampering gains on the Nasdaq Composite. General Mills,
Inc dropped 2.3% as second-quarter earnings disappointed. AMC
gained 9.2% on the day after debuting on the New York Stock
Exchange Wednesday morning. The initial public offering priced
shares of the movie theater company at $18 a piece. Read more in
the Movers & Shakers column.
* Other markets: Gold futures were volatile after the Fed
decision to slow down the bond-buying stimulus program and crude
oil futures rose to highest in more than a week. Stocks in Asia
rose and the European stocks rebounded
More stories on MarketWatch:
Live blog: Fed decision and Bernanke press conference
Poll: When do you expect the Fed to taper its bond-buying
program
Even Wall Street's bears see stock rally next year
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