After Federal Reserve Chair Jerome Powell acknowledged that inflation was starting to slow down, the S&P 500 and the Nasdaq closed sharply higher on Wednesday after a quarter-point rate hike by the US central bank.
Wall Street's major indexes lost ground immediately after the Fed announced its rate hike decision. It said ongoing increases to rates would be appropriate.
The indexes bounced off of their lows and gained ground soon after Powell started speaking to reporters with the S&P ending up 1% and the Nasdaq adding 2%.
Angelo Kourkafas, investment strategist at Edward Jones, said investors were encouraged by Powell's answer to a question about easing financial conditions such as rising equities and falling bond yields in recent months.
He had an opportunity to relay a hawkish message and didn't take it. He could have said markets were getting overly excited and he didn't take the opportunity. Kourkafas said that a lot of tightening has already happened.
The strategist said that he saw Powell's suggestion that there could be two more rate hikes as a placeholder because he could acknowledge for the first time that disinflation had started to happen.
The Dow Jones Industrial Average went up 6.92 points, or 0.02%, to 34,092. During the last year, the S&P 500 gained 42.61 points, or 1.05%, to 4,119. 21 and the Nasdaq CompositeNasdaq Composite added 231.77 points, or 2%, to 11,816. The S&P had its highest closing level since August 25 while the Nasdaq posted its highest close since September.
Of the 11 major industry sectors of the S&P 500, only energy ended the day lower, down 1.9%, while interest rate-sensitive technology shares were the biggest gainers, up 2.3%.
The size of the increase for the first policy meeting of the year was in line with expectations after rapid increases in 2022, including a December rate hike of 50 basis points, according to investors.
Money markets were betting on a terminal rate of 4.892% in June compared to the bets for 4.92% just before the Fed's statement.
The fed funds rate was seen as at 4.403% by the end of December, the same as before the meeting, as the US futures were pricing in rate cuts this year.
Recent readings indicate that inflation is easing, with the Fed looking at data that will determine the resilience of the labor market and wage growth.
Data showed that US job openings unexpectedly rose in December, ahead of the Labor Department's January report on non-farm payrolls due on Friday.
In January, US manufacturing contracted further as higher rates stifled demand for goods, according to separate economic data.
The S&P and the Dow had a strong start to the year, with the S&P and Dow seeing their first gain since January, as investors returned to markets that were bruised by a hawkish Fed in the previous year.
Advancers favor advancers because of a 2.86 to 1 ratio on the NYSE, and a 2.28 to 1 ratio on the Nasdaq.
The S&P 500 posted 24 new 52 week highs and no new lows, while the Nasdaq CompositeNasdaq Composite recorded 136 new highs and 23 new lows.
In the last 20 sessions, there were 13.7 billion shares changed hands in US exchanges, compared to the 11.5 billion daily average.