Dow holds gain 400+ points as Fed signals tapering, rate hikes

U.S. stock indexes held near session highs Wednesday after the Federal Reserve signaled tapering would likely begin later this year and that interest rate hikes will start in 2022.

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The Dow Jones Industrial Average rose 400 points, or 1.18%, while the S&P 500 index and the Nasdaq Composite index advanced 0.89% and 1.05%, respectively.

The Federal Reserve kept policy on hold on Wednesday, but said a “moderation in the pace of asset purchases may soon be warranted” as long as the U.S. economy progresses as expected. The Fed also said it expects to raise interest rates at least once next year and three times in 2023.

The central bank raised its inflation outlook to 4.2% for this year. It sees core personal consumption expenditures inflation reaching 3.7% before falling to 2.2% next year.

The Fed’s decision comes hours after Evergrande negotiated a deal to settle interest payments, soothing contagion concerns for the time being. The embattled Chinese real estate developer must make another payment on Thursday.

In stocks, interest-rate sensitive names like Bank of America Corp. and JPMorgan Chase & Co. outperformed despite the yield on the 10-year note declining 2 basis points to 1.3%.

Elsewhere, FedEx Corp. reported a 7% drop in quarterly profit and cut its full-year earnings forecast due to its inability to find workers ahead of the crucial holiday season.

General Mills Inc. beat on both the top and bottom lines and guided organic net sales at the high end of its previous range.

Adobe Inc. announced record quarterly revenue and issued better-than-expected earnings guidance for the current quarter.

Stitch Fix Inc. posted a surprise profit as the company’s new direct purchase option, as an alternative to its monthly subscription service, provided a boost.

Meanwhile, Marin Software Inc. shares soared after the company entered into a revenue share agreement with Google to develop its enterprise tech platform and software products.

In commodities, West Texas Intermediate crude oil surged $1.43 to $71.92 a barrel and gold edged up 70 cents to $1,776.70 an ounce.

Overseas markets were mostly higher.

European bourses rallied across the board with Britain’s FTSE 100 up 1.47%, France’s CAC 40 gaining 1.29% and Germany’s DAX 30 rising 1.03%.

In Asia, China’s Shanghai Composite index jumped 0.4% while Japan’s Nikkei 225 lost 0.67%. Hong Kong’s Hang Seng index was closed for holiday.

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