More on the Fed
With Wednesday's rally, the S&P is up 21% so far in 2013.
The gains added to a strong advance in September, and came even as Wall Street wrestled with new questions about the strength of the U.S. recovery. The Federal Reserve cut its U.S. growth forecasts for 2013 and 2014.
Among the best performers in Wednesday's advance were utilities and housing stocks, areas that benefit from continued low interest rates. Also gaining were overseas issues, particularly in Latin America, and the shares of companies dealing in raw materials.
"It's a big shock, and it's a massive green light for a risk-on party," said Benoit Anne, global head of emerging-market strategy at SociÃ©tÃ© GÃ©nÃ©rale.
For months, many investors had been looking to this week's meeting of the Fed's policy-making committee as a likely turning point in the Fed's easy-money policies, which have played a major role in keeping interest rates low and fueling the stock market's rally. Most investors had been expecting the Fed to pull back on its monthly bond purchasesâ€“currently $85 billionâ€“by between $10 billion and $15 billion.
But Fed officials said they wanted more evidence of sustained improvement before making any moves.
"I'm surprised they didn't start to reduce bond purchases by a small amount," said Kate Warne, investment strategist with Edward Jones. "We figured they'd take a baby step rather than nothing at all."
Still, investors noted the decision by the Fed to maintain its so-called quantitative easing efforts only postpones the inevitable pullback by the central bank. The Fed's next policy-making meeting is scheduled for the end of next month, and Fed Chairman Ben Bernanke said at his press conference Wednesday that a paring of stimulus could take place this year.
"Now we're back to this, where every [economic] report we're going to have to parse to see what the Fed thinks," said Marc Doss, San Diego-based regional chief investment officer withÂ Wells FargoÂ WFCÂ +1.07%Â Private Bank.
For now, however, investors said the Fed's decision gives stocks the green light to push still further into record-high territory.
"You've got a trend that's up and a Fed that's in your corner, and you don't want to fight the Fed," said Rob Glownia, quantitative analyst at RiverFront Investment Group LLC, in Richmond, Va.
A.C. Morgan, managing director in equities trading atÂ UBSÂ AG,Â UBSÂ +1.27%Â said he saw buying by a diverse set of investors after the statement, and noted several of the big-picture issues that have troubled investors of late have fallen by the wayside.
"Syria, that's gone. Who's going to replace Bernanke? That's gone," he said. "And what's tapering going to look like? We don't have to worry about that right now."
In the bond market, Wednesday's rally extended the benchmark 10-year note's winning streak into a sixth consecutive session. The buying sent the yield to the lowest level in more than a month. Bond prices rise when their yields fall.
The benchmark 10-year note yield fell to as low as 2.671% during the afternoon trade, the lowest level since Aug. 13.
Traders and investors that placed bearish bets on bond prices have scrambled to cover their sour bets after Lawrence Summers's announcement over the weekend that he was withdrawing from consideration to succeed Mr. Bernanke. Wednesday's Fed statement prompted such bets to unwind further, traders said. By covering short bets, these market participants buy back bonds, boosting bond prices and sending yields lower.
"The market was caught off guard" with the Fed's decision to stand pat, said Sean Simko, head of fixed income portfolio management atÂ SEI InvestmentsÂ SEICÂ -0.07%Â . "At this point the 10-year yield should be capped at 3%."
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