U.S. stocks staged an explosive rally on Wednesday, driving the Dow Jones industrial average and the S&P 500 to all-time closing highs after the Federal Reserve announced it would start to unwind its historic stimulus.
While the Fed's move came as a surprise to many in the market, it confirmed that the U.S. economy was on firmer footing and put to rest the question of when the Fed would begin to scale back its bond-buying program, a relief to some investors, analysts said.
"This is a vote of confidence in the economy and represents the first step toward monetary policy normalization," said David Joy, chief market strategist at Ameriprise Financial, in Boston.
The central bank said it would reduce its monthly asset purchases by $10 billion to $75 billion, while it also indicated that its key interest rate would stay at rock bottom even longer than previously promised. It said it "likely will be appropriate" to keep overnight rates near zero "well past the time" that the U.S. jobless rate falls below 6.5 percent.
Yet the decision to move now rather than later pointed to better prospects for the U.S. economy and the labor market. It also marked a turning point for the largest monetary policy experiment ever.
Stocks extended losses just after the announcement, but quickly turned higher and began rallying. The day's move marked the biggest swing from the day's high to the low for the S&P 500 in two years. All 10 S&P 500 sector indexes ended higher, with all but information technology gaining more than 1 percent, and the S&P 500 financial index rising 2.4 percent.
The Dow Jones industrial average surged 292.71 points or 1.84 percent, to end at 16,167.97, a record closing high. The S&P 500 gained 29.65 points or 1.66 percent, to finish at 1,810.65, also a record closing high. The Nasdaq Composite climbed 46.384 points or 1.15 percent, to close at 4,070.064.
Fed Chairman Ben Bernanke began hinting at a reduction in the stimulus back in May. The issue of when the Fed would make its move had been a source of uncertainty for markets since then. The Fed