Dow Jones jumps 338 points as Fed signals tapering, rate hikes

China's Evergrande negotiated a deal to settle some interest payments

U.S. stocks posted strong gains but finished off session highs Wednesday after the Federal Reserve signaled tapering would likely begin later this year and that interest rate hikes will start in 2022. 

The Dow Jones Industrial Average rose 338 points, or 1% while the S&P 500 index and the Nasdaq Composite index advanced 0.95% and 1.02%, respectively. The Dow had gained as many as 521 points just after the Fed's announcement. 

Ticker Security Last Change Change %
I:DJI DOW JONES AVERAGES 35587.92 +130.61 +0.37%
SP500 S&P 500 4535.76 +16.13 +0.36%
I:COMP NASDAQ COMPOSITE INDEX 15157.390697 +28.30 +0.19%

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. At his press conference, Fed Chairman Jerome Powell said the test of "substantial further progress" for inflation has already been met and that the labor market could that test as soon as next meeting.

The Fed's statement said the central bank expects to raise interest rates at least once next year and three times in 2023. 

Core personal consumption expenditures inflation will reach 3.7% before falling to 2.2% next year, the central bank said. The unemployment rate will hit 4.8% this year and 3.8% 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 as the yield on the 10-year note ticked up 1 basis point to 1.33%. 

Ticker Security Last Change Change %
BAC BANK OF AMERICA CORP. 46.71 +0.23 +0.49%
JPM JPMORGAN CHASE & CO. 169.32 +0.89 +0.53%

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. 

Ticker Security Last Change Change %
FDX FEDEX CORP. 231.10 +1.83 +0.80%
GIS GENERAL MILLS, INC. 62.34 +0.63 +1.02%

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. 

Ticker Security Last Change Change %
ADBE ADOBE, INC. 634.82 -1.25 -0.20%

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.

Ticker Security Last Change Change %
SFIX STITCH FIX, INC. 33.75 -0.13 -0.38%

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. 

Ticker Security Last Change Change %
MRIN MARIN SOFTWARE 7.37 -0.16 -2.12%
GOOGL ALPHABET, INC. 2,851.50 -13.24 -0.46%

In commodities, West Texas Intermediate crude oil surged $1.74 to $72.23 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.