Major U.S. benchmarks rallied on Wednesday following the Federal Reserve’s announcement that it would raise interest rates for the first time in nearly a decade, signaling the central bank’s confidence in the U.S. economy. The Fed’s move was seen as dovish, making riskier investments such as equities more attractive. The defensive sectors, which have recently suffered in anticipation of the rate hike, offered the strongest performance. The Federal Reserve’s 25-basis point interest rate hike is only the beginning; the central bank is expecting to adjust interest rates on a gradual tightening cycle based with inflation playing a key role in future adjustments. It should be noted that U.S. inflation is still below the Fed’s target. According to the Federal Reserve, the U.S. economy is expected to continue to grow, with future rate hikes dependent on continued performance. The Dow Jones industrial average gained 224.18 points, or 1.28%, to trade at 17,749.09. The S&P 500 index added 29.66 points, or 1.45%, to trade at 2,073.07 and the Nasdaq Composite gained 75.78 points, or 1.52%, to close Wednesday’s trading session at 5,071.13. Nine out of the S&P’s ten sectors finished higher, with the utilities sector leading the gainers with a 2.6% rise. At the same time, the energy sector moved lower on continued weakness in energy prices.
Asian markets rallied, following Wall Street’s lead in taking the Federal Reserve’s interest rate hike as a sign of confidence in the world’s largest economy. The Japanese Nikkei 225 added 1.6%, following the previous session’s 2.6% gain. Australian shares also rose 1.6 percent, and the Shanghai SSE (L:SSE) Comp gained 1.7%. MSCI's broadest index of Asia-Pacific shares outside Japan posted a 0.7% gain. In currencies, China allowed the yuan to slip for the 10th consecutive session, touching its lowest point since mid 2011, adding pressure on other Asian currencies to move lower in an effort to remain competitive. The dollar was strengthened by the Federal Reserve’s interest rate hike, lifting the dollar index, which compares the greenback to a basket of six peer currencies, to 98.794 with a 0.9% advance. The euro moved lower to $1.0852 after falling from $1.1.
This week’s economic data releases continue today with the release of the German Ifo business climate report, U.K. retail sales and U.S. initial jobless claims. On Friday, the Bank of Japan is scheduled to provide its interest rate decision, as well as U.S. services and composite PMI.