US Stock Market Rallies After Fed Rate Increase

US stocks soared Wednesday after the Federal Reserve approved its biggest interest-rate increase since 1994 but suggested moves of that scale likely would not become common.

The S&P 500 rose 54.51 points, or 1.5%, to 3789.99, snapping a five-day losing streak. The Dow Jones Industrial Average added 303.70 points, or 1%, to 30668.53, and the Nasdaq Composite rose 270.81 points, or 2.5%, to 11099.15.

The Fed’s move is its latest effort to quell inflation through tighter monetary policy. Investors had largely expected the Fed to raise its short-term benchmark rate by 0.75 percentage point. What some had worried about heading into Wednesday’s interest-rate decision was that the Fed would have to raise interest rates at an even more aggressive pace.

At a press conference that followed the decision, Fed Chairman Jerome Powell said Wednesday’s move was “an unusually large one.” He added that he expected either a 0.50 percentage point or 0.75 percentage point increase at the Fed’s July meeting.

Ultimately, the guidance the Fed gives about the direction of interest rates Wednesday is more important for markets than the size of the rate increase, said Dorian Carrell, a fund manager at Schroders. Uncertainty about monetary policy has been a key driver of volatility this year, helping send the S&P 500 on Monday into bear-market territory, or a drop of at least 20% from a previous high.

“Markets are pricing in a Fed that’s trying to get in front of the curve rather than behind the curve on inflation,” said Art Hogan, chief market strategist at National Securities. That helped lift stocks heading into Wednesday’s rate decision, Mr. Hogan added.

Stocks rose broadly, with 10 of the S&P 500’s 11 sectors ending higher.

Technology stocks, which have been among the hardest-hit areas of the market this year, were among the biggest gainers. Microsoft,

Nvidia,

Amazon.com and Netflix each added about 3% or more.

The Fed’s interest-rate decision was displayed on a screen Wednesday on the New York Stock Exchange floor.


Photo:

BRENDAN MCDERMID / REUTERS

Economically sensitive areas of the market also rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed Wednesday, with the KBW Nasdaq Bank Index up 1.6%.

Energy stocks slid, marking a relatively rare retreat for this year’s best-performing S&P 500 sector. The S&P 500 energy sector fell about 2.1%.

Meanwhile, US government bonds rallied after sliding in recent weeks in a selloff that has pushed yields to their highest levels in more than a decade. The yield on 10-year Treasurys slipped to 3.389% from 3.482% Tuesday. Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.

Elsewhere, European stocks and prices on peripheral government bonds jumped in the eurozone after the ECB held an ad hoc meeting Wednesday to discuss turbulence in the region’s bond markets.

The ECB outlined a plan to buy more bonds from weaker eurozone governments under an existing bond-purchase program. It tasked ECB staff with accelerating the design of a new instrument that would narrow differences in borrowing costs across the region, addressing financial imbalances that have long posed a problem to the currency union.

“They wanted to make sure financing conditions don’t deteriorate too much,” said Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management. He said the meeting signaled that the ECB was ready to cushion markets earlier than investors had expected.

The Stoxx Europe 600 rose 1.4%, led by shares of banks and insurers. Shares of Italian banks, which own a substantial chunk of government bonds, had suffered as the debt fell in price. Intesa Sanpaolo and UniCredit were among the best performers in the European market Wednesday.

Where in Americans’ household budgets is inflation hitting the hardest? WSJ’s Jon Hilsenrath traces the roots of the rising prices to learn why some sectors have risen so much more than others. Photo Illustration: Laura Kammermann / WSJ

Corrections & Amplifications
The Dow Jones Industrial Average midafternoon Wednesday traded at 30669. An earlier version of this article incorrectly said it traded at 20639. In addition, yields on 10-year government bonds settled in Italy settled at 4.111% on Tuesday. An earlier version of this article incorrectly said yields settled at 4.067%. (Corrected on June 15)

Eric Wallerstein contributed to this article.

Write to Joe Wallace at joe.wallace@wsj.com and Akane Otani at akane.otani@wsj.com

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