Dow, S&P 500 surge to new records on Fed decision

A board above the trading floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average on Wednesday, Dec. 18, 2013. Stocks surged after the Federal Reserve decided the US economy was strong enough for it to reduce its stimulus efforts. AP

NEW YORK—US stocks Wednesday surged to new records after the US Federal Reserve modestly scaled back its bond-buying program, while signaling it would continue to keep interest rates low.

The Dow Jones Industrial Average soared 292.71 (1.84 percent) to 16,167.97, while the broad-based S&P 500 jumped 29.65 (1.66 percent) to 1,810.65. Both were records.

The tech-rich Nasdaq Composite index rose 46.38 (1.15 percent) to 4,070.06.

The Fed said it would scale back its bond-buying program from $85 billion to $75 billion starting in January due to conditions “consistent with growing underlying strength in the broader economy,” according to a statement by the Federal Open Market Committee.

But the move to taper the purchases was accompanied by a decision to extend the period of very low interest rates.

The move means the current near-zero rate likely will be in place “well past the time” that the unemployment rate declines below 6.5 percent,” said the FOMC statement.

The overall thrust of the statement was “a bit dovish,” said Dan Greenhaus, chief global strategist at BTIG. The move to extend the period of low interest rates “compensated” for the taper decision, he said.

“The market is taking the statement as somewhat dovish, somewhat supportive of growth and the economy, and by extension, somewhat supportive of asset prices.”

Large banks advanced, including JPMorgan Chase (+2.7 percent), Wells Fargo (+3.1 percent) and Bank of America (+3.4 percent).

Home builders also scored large gains, including DR Horton (+6.4 percent), PulteGroup (+2.2 percent) and Lennar (+6.3 percent), which reported a 32 percent rise in quarterly earnings to $164.1 million.

Ford Motor sank 6.3 percent after forecasting 2014 pre-tax profits at $7-8 billion, below the $8.5 billion it expects in 2013, and well below analyst expectations. The company also said its medium-term profit margin target was at risk.

Dow component Boeing fell 0.3 percent after announcing a series of executive promotions, including the promotion of Dennis Muilenburg to president. Analysts said the moves suggested Muilenburg was in line to become the next chief executive.

Tech giant Apple fell 0.8 percent after a leading supplier to the iPhone, Jabil Circuit, gave a weak outlook, raising speculation of low iPhone orders. Analysts also pointed to the lack of a deal with China Mobile, despite news reports indicating an agreement had been reached.

Bond prices fell. The yield on the 10-year US Treasury rose to 2.89 percent from 2.84 percent, while the 30-year jumped to 3.91 percent from 3.87 percent. Bond prices and yields move inversely.