Wall Street surges after Fed signals December rate hike possible

US stocks ended sharply higher on Wednesday after a volatile session as the Federal Reserve gave a vote of confidence in the US economy by signalling a December interest rate hike was still on the table.

S&P financials, which benefit from higher borrowing rates, shot up following the Fed statement and led sector gains. The financial index ended up 2.4 per cent, its biggest percentage gain in seven weeks. The KBW Nasdaq regional bank index jumped 4.1 per cent.

S&P utilities, which tend to do worse when interest rates are rising, fell 1.1 per cent and led S&P sector declines.

The Fed left rates unchanged, as expected, and, in a direct reference to its next meeting, put a December rate hike firmly in play. It also downplayed global economic headwinds in its statement.

Stocks initially sold off following the statement, with the S&P 500 erasing close to a 1 per cent gain, but quickly rebounded to end at the day’s highs as investors saw the statement as a sign the Fed has confidence the US economy can sustain a rate hike.

“Obviously the first move (in stocks) is down, which is conventional wisdom. However, I do like the idea of the Fed having more confidence in the economy, less concerned about the global backdrop and willing to ring the bell on the long-term health of the US economy with a rate hike,” said Michael Marrale, head of research, sales and trading at ITG in New York.

The Fed has not raised rates in nearly a decade.

The Dow Jones industrial average rose 198.09 points, or 1.13 per cent, to 17,779.52, the S&P 500 gained 24.46 points, or 1.18 per cent, to 2,090.35, its highest in more than two months.

The Nasdaq Composite added 65.55 points, or 1.3 per cent, to 5,095.69, while the Nasdaq 100 index of biggest non-financial names rose 0.9 per cent to 4,678.57, just shy of a 15-year high.

A 4.1 per cent gain in Apple’s shares to US$119.27 also helped support indexes a day after stronger-than-expected results.

The company sold 48 million iPhones in the latest quarter and posted a near doubling of revenue from China, allaying concerns about its business in the world’s second-largest economy.

On the flip side, Twitter shares fell 1.5 per cent to $30.87 while Akamai Technologies dropped 16.7 per cent to $62.91, Both reported disappointing results late Tuesday.

The S&P energy sector snapped a three-day losing streak, ending up 2.2 per cent, after a sharp rally in crude oil prices .

After the bell, shares of GoPro dropped 15.2 per cent to $25.62 following its results.

Advancing issues outnumbered declining ones on the NYSE by 2,428 to 645, for a 3.76-to-1 ratio on the upside; on the Nasdaq, 2,252 issues rose and 605 fell for a 3.72-to-1 ratio favouring advancers.

The S&P 500 posted 35 new 52-week highs and six new lows; the Nasdaq recorded 155 new highs and 82 new lows.

About 8.5 billion shares changed hands on US exchanges, well above the 7.1 billion daily average for the past 20 trading days, according to Thomson Reuters data.