Market Snapshot: Dow, S&P hit intraday records, Nasdaq flips positive after Fed signals no interest rate hikes through 2023


U.S. stock pushed higher Wednesday, after Federal Reserve policy makers left the central bank’s key accommodative policies in place, saying they expect no policy interest rate hikes through 2023, even if inflation overshoots 2%.

What are major benchmarks doing?
  • The Dow Jones Industrial Average

    was up 206 points, or 0.6%, to 33, 032, after hitting a new intraday record of 33,047.58.
  • The S&P 500

    rose 20 points, or 0.5%, to 3,982, after setting an intraday all-time high of 3,983.67.
  • The Nasdaq Composite

    index gained 122 points, or 0.9%, to trade near 13,593.

Stocks ended mostly lower Tuesday, with the Dow falling 127.51 points, or 0.4%, and the S&P 500 edging down 0.2% after closing at records in the previous session. The Nasdaq Composite held on to a gain of 0.1%.

What’s driving the market?

Stocks sharply and stocks rallied after the Fed said it plans to hold its policy interest rates near zero through 2023 and made no changes to its monthly asset purchases, but signaled that inflation could slightly overshoot it 2% target.

The central bank also marked up GDP growth this year to a 6.5% annual rate and said core inflation would rise slightly above the central bank’s 2% target. Seven of 18 Fed officials also penciled in a rate hike in 2023, up from 5 at the last “dot-plot” in December, while four officials expect a rate hike in 2022, up from one member in the December forecast.

Fed Chairman Jerome Powell again stressed that the Fed is willing to wait to adjust its dovish policy until the labor market recovers, adding that the U.S. still has 9.5 million fewer jobs from pre-pandemic levels.

Live Blog: Fed faces communication challenge as doubts mount about its easy policy stance

“All in all, this was pretty close to what we were expecting,” Kathy Jones, chief fixed income strategist at Charles Schwab, told MarketWatch. “Markets were concerned the Fed would shift its view more aggressively,” she said. “But the message is still that this is an incomplete recovery and we’re going to wait.”

Analysts have been forecasting a surge in economic growth as vaccine rollouts finally quell the pandemic and as another $1.9 trillion of COVID aid starts to hit bank accounts, boosting spending and lifting inflation expectations.

Since the Fed last released forecasts in December, the yield on 10-year U.S. Treasury note has risen by about 0.7 percentage point as investors have priced in higher interest rates and inflation. That in turn has contributed to a rotation away from previously highflying growth stocks toward more cyclically sensitive stocks.

Read: How stocks, bonds and the dollar have responded to every Fed meeting since Sept. 2019

“It’s a really weird environment,” said Anthony Denier, chief executive officer of trading platform Webull, adding that while most people expect U.S. economic data to be much improved a year from now, that they also want the tell the Fed: “please don’t take your foot off the gas.”

See: What would cause the Fed to take a U-turn? Hint: a lot more than some high inflation readings

Powell also said, in an afternoon press conference, to expect an announcement in the coming days about bank capital rules regarding the Supplementary Liquidity Ratio (SLR), potentially worrisome point for debt markets. The SLR was introduced at the start of the coronavirus pandemic to encourage big banks to lend and support bond and short-term funding markets, by allowing their balance sheets to expand without the need to raise extra capital. The rule is currently set to expire on March 31.

See: Investors say regulatory relief for bank capital rules could ease pressure on bond market

Looking past the gyrations caused by rising bond yields, there are additional reasons to be cautious about stocks, said Katie Stockton, a market technician and founder of Fairlead Strategies.

“In the near term, I’m seeing some signs of exhaustion,” Stockton said in an interview. That’s more evident in small-cap stocks

that have had a big run-up, she said. “The lack of momentum since the February highs means we’re not out of the woods yet.”

Stockton is paying close attention to the Cboe Volatility Index
which has recently tested lows not seen since last March. “A couple of daily closes below 20 to me would be a bullish development for equity markets because it would suggest we’re getting into a lower volatility regime, characteristic of the pre-COVID era.”

Housing data was mixed in February, with starts at a 1.42 million seasonally adjusted annual rate badly missing the consensus forecast of a 1.75 million rate, while permits were higher than forecast, at 1.682 million.

See: Markets set up for disappointment from Fed meeting as bond yields renew rise

Which companies are in focus?
What are other assets doing?

Read next: Value stocks are making a comeback. Don’t get left behind, these analysts say

William Watts contributed reporting

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