US stocks eliminated previous losses and rose on Wednesday after the Federal Reserve announced it would not see rate hikes through 2023 and inflation will run hotter to ensure a full recovery.
The Dow Jones Industrial Average gained 200 points. The S&P 500 rose 0.2%. The Nasdaq Composite erased previous losses and turned green. The tech-heavy benchmark fell 1.5% at the beginning of the session as tech stocks were hit again by higher interest rates.
While the Fed expects rates to remain unchanged for the next two years, the central bank has improved its economic outlook to meet expectations of a stronger recovery from the pandemic-triggered recession. Gross domestic product is projected to grow 6.5% in 2021 before cooling off in later years.
Core inflation expectations rose and the Committee is now targeting a 2.2% increase this year as measured by personal consumption expenditure.
“Following a slowdown in the pace of recovery, indicators of economic activity and employment have recently emerged, although the sectors hardest hit by the pandemic remain weak. Inflation remains below 2 percent,” the committee said in its meeting statement.
Investors will also hear from Fed Chairman Powell, who is likely to move the equity and bond markets with his comment, although he is unlikely to offer details.
The yield on 10-year government bonds remained higher, according to the Fed, rising 4 basis points to 1.67%. At the beginning of the meeting, the key interest rate rose to 1.689% and reached a level not seen since the end of January 2020. The 30-year rate rose to 2.428%, its highest level since November 2019. Higher interest rates undermine the value of future cash flows and are particularly bad news for growth companies.
“There is this assumption [Powell’s] will be reluctant … In another round of spending, he will find it difficult not to be reluctant. You are definitely afraid of scaring the market. They are afraid of disrupting their recovery, “said Peter Boockvar, chief investment officer, Bleakley Advisory Group.
Rising interest rates have been an overhang for stocks in the past few weeks, especially for the tech sector. The surge in yields has forced value stocks to shift away from growth, pushing the Dow Jones Industrial Average and S&P 500 near record highs.
Disney shares eliminated previous losses and gained 0.8% after CEO Bob Chapek told CNBC that California’s two Disneyland theme parks will reopen on April 30th.
McDonald’s was up 2% after Deutsche Bank upgraded the stock to buy from the hold.
– CNBC’s Patti Domm contributed to this report.
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