The Standard & Poor's 500 Index climbed to a record high after the Federal Reserve unexpectedly refrained from reducing bond buying, emboldening bulls who have enjoyed a 154 percent rally since stimulus began five years ago.
Utilities, commodity shares and financial companies rallied the most out of 10 groups in the S&P 500, rising more than 1.5 percent. Bank of America Corp. and General Electric Co. jumped more than 1.8 percent. Adobe Systems Inc. surged 9.3 percent as the largest maker of graphic-design tools said it amassed more than 1 million customers for its online services. FedEx Corp. rose 5.3 percent after earnings topped estimates.
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The S&P 500 jumped 1.4 percent to 1,729.22 at 3:04 p.m. in New York, erasing an earlier decline of as much as 0.3 percent. The benchmark index climbed above its all-time high of 1,709.67 reached on Aug. 2. The Dow Jones Industrial Average rose 176.39 points, or 1.1 percent, to 15,706.12, also a record. Treasuries and gold rallied while the dollar slid.
U.S. stocks volume surged after the Fed's announcement. About 552 million shares traded on all exchanges in the 10 minutes after 2 p.m., compared with 113 million in the preceding 10 minutes, according to data compiled by Bloomberg.
"Fed driven liquidity will continue for at least another month or two," Terry Sandven, chief investment strategist at U.S. Bank Wealth Management, said in a phone interview. His firm manages $112 billion. "On the other side of that equation, it sends the signal that the Fed is not yet confident that economic conditions are improving at a sustainable rate."
Chairman Ben S. Bernanke and his policy making colleagues refrained from paring record accommodation as rising borrowing costs show signs of slowing the four-year expansion. Treasury yields have jumped since May, when Bernanke first outlined a possible timetable for a reduction in the asset purchases that have swelled the Fed's balance sheet to $3.66 trillion.
"The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the Federal Open Market Committee said today at the conclusion of its two-day meeting in Washington. While "downside risks" to the outlook have diminished, "the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement."
The FOMC has been debating how to scale back it $85 billion in monthly purchases of Treasury and mortgage debt aimed at stoking economic growth and reducing unemployment that was 7.3 percent in August. The Fed has held the main interest rate near zero since December 2008 and pushed its balance sheet to a record $3.66 trillion through three rounds of bond buying.
"What they're basically saying is 'Look, we're not tapering yet, but we're planning to taper pretty soon,'" said Michael Strauss, who helps oversee about $25 billion of assets as chief investment strategist and chief economist at Commonfund Group in Wilton, Connecticut. "I have thought they have more than prepared the market to start the process today."
Among 64 economists surveyed by Bloomberg News, 33 predicted the Fed would reduce its buying of Treasuries by $5 billion or less, with 31 forecasting a cut of $10 billion or more.
Most Federal Reserve policy makers expect the first increase in the nation's benchmark lending rate to occur in 2015. The federal funds rate target will be 2 percent at the end of 2016, according to the median of estimates by five governors on the Fed's board and 12 reserve bank presidents. That rate compares with their median estimate of 4 percent for where the rate should be at a time of full employment and stable prices.
The central bank's stimulus program has helped the S&P 500 rally 154 percent from its March 2009 low. Speculation over the future of quantitative easing has whipsawed global asset prices since May. The S&P 500 tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at its latest record last month, then slumped as much as 4.6 percent before climbing again.
The Fed has been watching data for signs of the economy's health. Data today showed builders began work on fewer U.S. homes than projected in August.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, dropped 9 percent, the most since July 19, to 13.23. The equity volatility gauge has tumbled 22 percent in September after rallying 26 percent in August, the biggest monthly gain since May 2012.
All 10 main S&P 500 industry groups advanced at least 0.5 percent. Utilities rallied 3.3 percent as Treasury yields sank and investors increased purchases of high dividend yielding equities.
The Dow Jones Transportation Index jumped 1.5 percent to an all-time high. The Morgan Stanley Cyclical Index, which tracks shares in companies whose earnings are closely tied to economic growth, advanced 1.6 percent to a record. The Nasdaq 100 Index jumped 1.4 percent to 3,234.45, its highest level since November 2000.