MARKET SNAPSHOT: U.S. Stocks Jumps On Fed Announcement

By Anora Mahmudova, MarketWatch

NEW YORK (MarketWatch) -- U.S. stocks rallied Wednesday after the Federal Reserve announced that it would begin slowing down the pace of bond purchases, known as quantitative easing. The Fed policymakers voted to cut $10 billion a month from its $85 billion bond-buying program, starting in January.

Dow Jones Industrial Average (DJI) jumped 182 points, or 1%, to 16,055.01. The S&P 500 index (SPX) reversed earlier losses and rose 18 points, or 1% to 1,798.48. Nasdaq Composite (RIXF) was up 17.70 points to 4,041.13.

The Federal Open Market Committee in a statement on its policy decision, said "In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases."

Earlier, housing starts data showed that Americans built more new homes than expected in November, shrugging off rising mortgage rates. The pace at which new homes were built soared to a seasonally adjusted annual rate of 1.09 million, the highest rate since February 2008, with surges for single-family homes and apartments, the government reported Wednesday.

Better-than-expected housing data sent the S&P 500 home-builders index up 4.6%, as Lennar Corp. (LEN), D.R. Horton, Inc (DHI) and PulteGroup, Inc (PHM) are among the best-performing stocks on Wednesday.

"Everyone was focusing on the wrong animal, they were betting on whether the Fed is hawkish or dovish, but they missed the fact that the Fed is bullish on the economy," said Burt White, chief investment officer at LPL Financial.

"Essentially the Fed made a trade: it traded liquidity -- or shaving off $10 billion a month -- for a boost in confidence. Changing the unemployment expectations to 6.5% it committed to keeping low raters for longer," he added.

* Comment: Joe Bell, senior equity analyst with Schaeffer's Investment Research thinks markets are rewarding the clarity: "It is a good sign that markets are reacting positively to news that the economy is in a good shape and improving. The Fed's decision is data driven, so if it decided to taper it is because it is confident about the recovery in the economy."

* Today's movers & shakers: Lennar Corp. shares rose 3% after fiscal fourth-quarter profits and revenues beat estimates. Shares of Jabil Circuit, Inc fell 20% after earnings and outlook fell short of Wall Street's expectations. Ford Motor Co shares slid 5% as the car maker lowered its 2014 outlook. Target Corp. shares rose 2.4% after the retailer's chief executive, Gregg Steinhafel, said he was pleased with Target's holiday performance and introduced a round of "last minute" sales. FedEx Corp shares fell 0.8% after earnings missed expectations. General Mills, Inc dropped 2.3% as second-quarter earnings disappointed. AMC gained 9.2% on the day after debuting on the New York Stock Exchange Wednesday morning. The initial public offering priced shares of the movie theater company at $18 a piece. Read more in the Movers & Shakers column.

* Other markets: Gold records modest gains ahead of the Fed announcement and crude oil futures moved higher after a drop in crude U.S. inventories. Stocks in Asia were mostly up led by gains in Japan and the European stocks are broadly higher.

More stories on MarketWatch:

Live blog: Fed decision and Bernanke press conference

Poll: When do you expect the Fed to taper its bond-buying program

Even Wall Street's bears see stock rally next year

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