Dow, S&P End at Records; Fed Keeps Zero-Rate Outlook Through '23

Stocks close at records -- with the Dow finishing above 33,000 for the first time -- as the Fed says rates will remain near zero at least through 2023.
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The Dow Jones Industrial Average and the S&P 500 on Wednesday closed at records after the Federal Reserve projected interest rates would remain near zero through at least through 2023 and upgraded its outlook for economic growth.

“Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak,” the Fed said in a policy statement Wednesday. “Inflation continues to run below 2%.”

The Dow finished up 189 points, or 0.58%, to 33,015, the first time it closed over 33,000. 

The S&P 500 gained 0.29% and the tech-heavy Nasdaq Composite gained 0.4%.

Leading the Dow industrial higher was materials-science specialist Dow Inc.  (DOW) - Get Report, up 4.5%. 

Among the Nasdaq 100 leaders: Baidu  (BIDU) - Get Report, up 3.9%, Tesla  (TSLA) - Get Report, up 3.7%, Micron Technology  (MU) - Get Report, up 3.6%, and Marriott International  (MAR) - Get Report, up 3.5%. 

At its meeting on Wednesday the central bank kept interest rates unchanged and maintained its asset-purchase program at $120 billion of bonds a month. The Fed said it would keep that pace until substantial further progress was made on its employment and inflation goals.

Seven of 18 Fed officials said they expected higher interest rates by the end of 2023. At the Fed's December meeting five officials predicted higher rates by 2023.

The Fed said Wednesday gross domestic product was expected to increase 6.5% in 2021 before cooling off in 2022 and 2023. Previously, the central bank expected economic growth of 4.2% in 2021.

The central bank expects inflation, as measured by personal consumption expenditures, to rise to 2.4% this year and then slow next year to 2%.

Fed Chairman Jerome Powell said during a news conference Wednesday that "inflation expectations are strongly anchored around 2%."

"Things tend to change over time and they tend to change when the central bank doesn't understand that having inflation expectations anchored at 2% is the key to it all," Powell said. "Having them anchored at 2% is what gives us the ability to push hard when the economy is really weak."

Bond yields have pushed higher recently on rising inflation expectations and have sparked a rotation to value stocks from high-growth equities, particularly technology shares. The 10-year Treasury yield was at 1.657% Wednesday, coming off a 14-year high of 1.689%.

"We are seeing interest rate levels that should not concern or derail the economy - it is normal to see rates substantially rise during a recovery, and quickly," said David W. Wagner, portfolio manager and analyst at Aptus Capital Advisors. "It is healthy to see rates rise, along with economic growth."

Real Money contributor James "Rev Shark" DePorre said, however, that interest rate worries were undermining "individual stock-picking, and that is what is making trading very difficult right now." 

Stocks ended mostly lower Tuesday and the S&P 500's winning streak of five sessions came to an end as investors awaited the Fed's projections on the U.S. economy. The Dow ended a seven-day streak of gains.

Oil prices declined Wednesday after the International Energy Agency said ample global supplies and significant spare capacity linked to OPEC production cuts make a new price "supercycle" unlikely.

“Our data and analysis suggest otherwise,” Paris-based IEA said in its monthly report. “There is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied.”

Plug Power  (PLUG) - Get Report ended down 7.9% Wednesday after the fuel-cell company disclosed accounting errors in results for 2018, 2019 and the first three quarters of 2020.