By Anora Mahmudova, MarketWatch
NEW YORK (MarketWatch)--Two U.S. stock indexes notched record
closing levels on 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 and
welcomed its commitment to low rates for a considerable time.
The Fed policy makers voted to reduce monthly asset purchases to
$75 billion from $85 billion, citing improvement in the outlook for
the economy.
The Dow Jones Industrial Average and the S&P 500 soared to
close at all-time highs. The Dow (DJI) added 293 points, or 1.8%,
to 16,167.97, topping its prior record close on Nov. 27. The
S&P 500 index (SPX) rose 30 points, or 1.7% to 1,810.65,
surpassing its previous record close on Dec. 9. The Nasdaq
Composite (RIXF) was up 16 points or 1.1% to 4,070.66.
Financials and health-care sectors led the gains on the S&P
500. The Nasdaq's rally was hampered by Apple Inc., (AAPL) which
fell 0.8%.
The Federal Open Market Committee stressed its commitment to low
short-term interest rates well after bond purchases end altogether
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 construction of new homes
soared to a seasonally adjusted annual rate of 1.09 million in
November in the fastest pace since February 2008, signaling that
the housing market's recovery is shaking off rising mortgage rates.
The government reported surges in construction of both
single-family homes and apartments.
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) were among the best-performing
stocks on Wednesday.
In other markets:
* 10-year Treasury yields rose modestly, up 4 basis points to
2.89%
* Gold futures were volatile and settled $1,235 an ounce
* Crude oil futures rose to highest in more than a week.
* Stocks in Asia rose and the European stocks rebounded
"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."
* Wednesday's movers & shakers: Lennar Corp. shares rose
6.3% after fiscal fourth-quarter profits and revenues beat
estimates. Shares of Jabil Circuit, Inc fell 20.5% after earnings
and outlook fell short of Wall Street's expectations. Ford Motor Co
shares slid 6.3% as the car maker lowered its 2014 outlook. Target
Corp. shares rose 3.1% 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. Shares in Apple Inc
dropped 0.8% hampering gains on the Nasdaq Composite. General
Mills, Inc recovered after dropping more than 2% 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.
More stories on MarketWatch:
Live blog: Fed decision and Bernanke news 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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