US stocks rose slightly in early trading on Thursday, the Federal Reserve signaled it would be aggressive on tapering and sees three rate hikes in 2022.
The Dow Jones Industrial Average rose 137 points. The S&P 500 was flat and within striking distance of a record finish. The Nasdaq Composite lost 0.7%.
Thursday’s moves came a day after the stocks rally at the previous session, when the Federal Reserve announced a more aggressive plan to stop its asset purchases and rate hikes in 2022.
Stocks of companies that have done well in previous rate hike cycles led to early winners on Thursday, with commodity stock Freeport-McMoRan rising more than 3%. Bank stocks also rose across the board, with JPMorgan Chase, Citigroup and Bank of America all rising roughly 1%.
“I think the market was looking for certainty more than anything … It got that yesterday. There was a lot of bearish sentiment building in the market,” said Don Calgani of Mercer Advisors.
In Transportation News, Delta Air Lines reported that it now expects to make a profit of $ 200 million in the fourth quarter after previously forecasting a loss. Shares rose more than 1% on the news.
Corporate earnings appeared to be a weak spot for the market on Thursday as Adobe and Lennar stocks fell after disappointing quarterly reports in early trading.
Following the Fed news, traders accelerated their own rate hike expectations. Fed Fund futures trading now suggests a 63% chance the first quarterly percentage point hike will come in May 2022, with the chances also rising to about 44% that the central bank will, according to the CME FedWatch tool.
The Fed will begin slowing the pace of its bond purchases in January and will only buy $ 60 billion in bonds in the future, compared to $ 90 billion in December. That decision follows recent inflation data, which showed a 6.8% increase in November, higher than expected and the fastest since 1982.
“The notion that increased inflation would be temporary has been thrown out the window for good by the Fed and recent policy adjustments reflect a committee that doesn’t want to miss the next train leaving the station,” said Charlie Ripley, senior Investment strategist at Allianz Investment Management.
Additionally, Calgani said the rise of the Omicron variant could serve Powell as a “free pass out of jail” to revert to a more cautious stance if the economic recovery faltered.
In other central bank news, the Bank of England announced that it was raising its key interest rate 15 basis points to 0.25%. The European Central Bank also announced a plan to slow its emergency asset purchases.
In terms of economic data, weekly jobless claims were slightly higher than expected, while housing starts for November were much stronger than economists had forecast after a decline in the previous month.