Dow ends up 2.8%, Nasdaq rises 3.2% as market cheers Fed decision to lift rates by half point

A screen displays the Fed rate announcement, as a trader works on the floor of the New York Stock Exchange. PHOTO: REUTERS

NEW YORK (AFP) - Wall Street stocks soared on Wednesday (May 4) after the Federal Reserve announced a large 50 basis points interest rate increase but ruled out an even bigger hike for the foreseeable future.

The Dow Jones Industrial Average rose 2.8 per cent, or more than 930 points, to 34,061.06.

The broad-based S&P 500 gained 3 per cent to 4,300.17, while the tech-rich Nasdaq Composite Index jumped 3.2 per cent to 12,964.86.

Wednesday’s interest rate hike – the biggest since 2000 – was coupled with a move to begin reducing the central bank’s bond holdings from June 1, marking the Fed’s most aggressive steps so far to counter inflation.

Fed Chair Jerome Powell said 50-basis point increases “should be on the table at the next couple of meetings,” but added that a three-quarter point rise increase “is not something the committee is actively considering.”

Stocks rallied off the remarks as Powell also expressed confidence the US central bank could engineer a “soft landing” that tames inflation without sending the economy into recession.

Art Hogan, strategist at National Securities, said the Fed’s decision met expectations, but contained “no hawkish surprise,” adding that stocks could push higher in the coming sessions.

Some analysts have viewed the market as positioned for a potential rally after suffering deep losses in April amid worries over the Fed.

Wednesday’s rally was broad-based, with all 11 S&P 500 sectors advancing, along with every company in the Dow.

AMD shot up 9.1 per cent as the chip company reported higher quarterly earnings and pointed to strong demand for its products.

Starbucks jumped 9.8 per cent as the company disclosed slightly higher profits despite lower sales in China. The coffee chain unveiled new investments in US stores and employees in an effort to head off a growing unionization drive.

But Lyft sank around 30 per cent on disappointment over its second-quarter forecast, with the company’s revenue outlook lagging analyst expectations. Rival Uber dropped 4.7 per cent as it reported a net loss of US$5.9 billion (S$8.1 billion) even as revenue tripled to US$2.5 billion.

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