Dow extends gains after Fed decision, now up 500 points

U.S. stocks held onto their gains on Wednesday after the Federal Reserve indicated they will soon begin paring back on some of the monetary stimulus to support the economy throughout the pandemic.

The Dow Jones Industrial Average advanced 500 points, or 1.5%, led by Chevron and Boeing. The S&P 500 added 1.4% amid a 3.3% jump in the energy sector. The Nasdaq Composite gained 1.4%.

“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the Fed’s post-meeting statement said.

The central bank has been buying $120 billion a month of Treasurys and mortgage-backed securities since the start of the Covid crisis.

Chairman Jerome Powell will then hold a press conference at 2:30 pm ET.

“A dovish Fed (or even a Fed that meets expectations) could provide more of a relief rally today, but we continue to think the sheer number of unknowns remain a headwind that will keep markets volatile for the next few weeks, until there’s more clarity on the Fed, taxes, government funding and earnings,” Tom Essaye, founder of Sevens Report, said in a note.

Bank stocks climbed ahead of the Fed decision with Bank of America, JPMorgan and Goldman Sachs all trading at least 2% higher. The rally came even as the 10-year Treasury yield was slightly lower on the day at 1.31%.

On Fed decision days, stocks tend to trade higher throughout the morning and in the immediate aftermath of the release, but the market typically falls slightly when Powell speaks during his news conferences, according to Bespoke Investment Group.

Major averages have registered losses for September, a historically choppy month for stocks. The S&P 500 is down 2.8% so far in September, including a 1.7% drop on Monday for its worst day since May. Major averages attempted to rebound on Tuesday but failed with the Dow and S&P 500 finishing in the red for the fourth day in a row. The Dow is down about 3% in September.

At the center of investor concerns is embattled Chinese property developer Evergrande, which is facing a possible default if it can‘t make millions of dollars in debt payments on U.S. dollar-denominated bonds this week. Evergrande’s shares in Hong Kong are down nearly 90% since July 2020 as China cracks down on real estate speculation. Investors worry about a step down in global economic growth if China slows its property market too much or lets Evergrande fail.

Helping sentiment overnight was word from Evergrande that its real estate group would pay the interest on time on a mainland-traded bond denominated in yuan.

Commodity-related stocks led the comeback Wednesday as fears eased about ripple effects from Evergrande. Devon Energy surged more than 7%, while APA, Diamondback Energy and Marathon Oil all jumped about 5%. China exposed Wynn Resorts bounced more than 2%.

“We’re still in a position where ultimately stocks are going to rally hard off this, because unless Evergrande is going to cause a real seismic effect on the U.S. economy, the U.S. fundamentals are in good shape,” Fundstrat’s Tom Lee said on CNBC’s “Fast Money” Tuesday night.

FedEx shares tumbled 8% after profit fell at the shipper last quarter because of rising labor costs. FedEx also cut its forecast for the full year.

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