Dovish Fed Pushes Dow Up 288 Points, S&P 500 Gains Most Since 2013

A little bit of Fed dovishness goes a long way for stocks.

Associated Press

The S&P 500 gained gained 2% to 2,012.89, its best day since Oct. 2013, while the Dow Jones Industrial Average rose 1.7% to 17,356.87, its best day since Dec. 2013. The Nasdaq Composite advanced 2.1% to 4,644.31 and the small-company Russell 2000 finished up 3.1% at 1,174.78.

The big news, of course, was the Federal Reserve’s policy statement, which made one change that may or may not be a big deal by saying it would replace “considerable time” with “patient,” though it means the same thing as far as when rate hikes will begin. Mizuho’s Steven Ricchiuto explains:

The makers of policy coalesced around a more dovish policy statement than the markets and our own assessment of policy thought they would agree to. Specifically, everyone was expecting the Committee to drop the considerable period language. They did to some extent by substituting the word patient in the post-meeting statement. However, the very next line of the statement qualifies the change by saying it is fully consistent with the previous considerable period language. The so called "Dot Plots" also included a somewhat lower median year end 2015 Fed Funds rate, at 1.203% from 1.272%. Moreover, two of the three dissenters from the post-meeting statement, Plosser and Fisher, were more hawkish while Kocherlakota was more dovish. The composition of the voting Committee will be more dovish in 2015 and yet hawks will still be heard though the SEP. We see these developments as supportive of our call that the first rate hike will be in 2016 not 2015, especially after this year's inflation developments.

Aberdeen Asset Management’s Paul Atkinson says the Fed is in a “fortunate position:”

The Fed’s statement this month shows there’s faith that the economy is on the road to recovery. It hasn’t yet bounced back to where it was. That much is clear. But the Fed has noted an improving employment picture and the confidence that creates also boosts corporate investment. That’s all good news. What continues to restrain policy is muted recovery in the housing market and lower energy prices. This means the Fed is in the fortunate position of enabling the economy to gather steam without the shadow of immediately rising rates. In our opinion, that has to be positive for equity investors.

And so it is, at least for today.