Blue-chip stocks raced to an eight-month high, and the Standard & Poor’s 500-stock index stepped into a new bull market Wednesday after the Federal Reserve said it would likely keep interest rates low until at least late 2014.
The Dow Jones Industrial Average rose 83.10 points, or 0.7 percent, to 12,758.85, its highest level since May 10, 2011. The blue-chip index had fallen as many as 96 points shortly after the opening bell but shot higher after the Fed’s announcement at 12:30pm ET.
The S&P 500 finished with a gain of 11.41 points, or 0.9 percent, at 1,326.06, closing the day in bull-market territory — up more than 20 percent from its recent closing low on Oct. 3, 2011. The Nasdaq Composite led the major indexes with a gain of 31.67 points, or 1.1 percent, at 2,818.31.
The moves came after the central bank said it expects interest rates to stay at “exceptionally low levels” at least until late 2014. Previously, the Fed had said it expected the period of exceptionally low rates to last until mid-2013. The Fed said the economy continued to expand at a moderate pace and noted the recent improvement in overall labor-market conditions, though unemployment remains “elevated.”
“You can see by the reaction in the markets all over the world that tacking on those extra months was a big surprise,” said Dan Greenhaus, chief global strategist at BTIG. “Clearly, the Fed is saying, ‘I’m coming. Rates are going to be lower than you thought.’ If you believe that equity prices are impacted by lower interest rates, then you’re going to bid up stocks.”
The Fed’s move sent the dollar tumbling against its major rivals, pushing up commodity prices and sending Treasury yields sharply lower.
The stock market’s reversal traced a pattern that has become familiar in recent days — chipping away at early losses throughout the day.