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Dow jumps 150 points led by banks in post-Fed move, Nasdaq retreats

U.S. stocks rose on Thursday trading as bank shares moved higher following the Fed’s shift toward ending its pandemic era policies early next year.

The Dow Jones Industrial Average climbed 166 points. The S&P 500 was flat just below its record closing high from last week. The Nasdaq Composite was down 1%.

Bank stocks powered the outperformance of the Dow, with shares of JPMorgan and Goldman Sachs gaining more than 2%. Shares of Bank of America rose 2.8% after analysts at JPMorgan named the stock a top pick for next year.

Thursday’s moves came a day after stocks rallied in the previous session as the Federal Reserve announced a more aggressive plan to wind down its asset purchases and hike rates in 2022.

“I think what the market was looking for more than anything was certainty … It got that yesterday. There was a lot of bearish sentiment that was building up in the market,” said Don Calgani of Mercer Advisors.

The market’s strength was muted by struggles for some large tech names, with Apple falling more than 2% and major semiconductor stocks like AMD and Nvidia dropping. Shares of Adobe and homebuilder Lennar fell after underwhelming quarterly reports.

In transportation news, Delta Air Lines reported that it now expects to see a profit of $200 million in the fourth quarter, after previously projecting a loss. Shares rose 0.4% on the news. Stocks tied to the economic recovery including Caterpillar and chemical company Dow also moved higher.

Following the Fed news, traders accelerated their own expectations for interest rate increases. Fed funds futures trading now points to a 63% chance of the first quarter-percentage-point increase coming in May 2022, with chances also rising to about 44% that the central bank could make its first move as soon as March, according to the CME FedWatch Tool.

The Fed will begin reducing the pace of its asset purchases in January and buy just $60 billion of bonds each month going forward, compared to $90 billion in the month of December. That decision follows recent inflation data showing a 6.8% surge in November, which is higher than expected and the fastest rate since 1982.

“The notion that elevated inflation levels would be transitory has finally been thrown out the window by the Fed and the latest policy adjustments are reflective of a committee that doesn’t want to miss the next train leaving the station,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

Additionally, Calgani said that the rise of omicron variant could serve as a “get out of jail free card” for Powell to move back to a more dovish stance if the economic recovery falters.

In other central banking news, the Bank of England announced it is hiking its key policy rate by 15 basis points to 0.25%. However, the European Central Bank signaled that it did not expect rate hikes next year.

On the economic data front, weekly jobless claims came in slightly higher than expected, while housing starts for November were much stronger than economists projected after declining in the prior month.

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