US stocks rallied yesterday in a volatile session as investors struggled to decipher the Fed's signals on the economy after a dizzying two-week slide.
Buying accelerated into the close and the S&P 500 posted its best day in more than two years, following a drop of nearly 17 per cent over the past weeks.
The market reversed direction six times after a Fed statement that pledged two more years of near-zero interest rates.
Bank shares roared back from recent losses with the KBW capital markets index up 6.7 per cent.
“The last three or four weeks, the stock market has really discounted a mild recession,” said Mohannad Aama, managing director at Beam Capital Management.
“Now after the Fed announcement, the market has to start factoring in what the response from the Fed and the government will be. There is still a small chance for a fiscal stimulus aimed at job creation. The FOMC statement today was positive for equities.”
The Dow Jones industrial average gained 429.92 points, or 3.98 per cent, to end at 11,239.77. The Standard & Poor’s 500 Index rose 53.07 points, or 4.74 per cent, to 1,172.53. The Nasdaq Composite Index added 124.83 points, or 5.29 per cent, to 2,482.52.
About 16.4bn shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq -- more than twice the daily average so far this year of 7.75bn.
Advancing stocks outnumbered declining ones on the NYSE by a ratio of almost 12 to 1, while on the Nasdaq, almost five stocks rose for every one that fell.
The three major US stock indexes, though, are still in negative territory for the year, in spite of yesterday’s strong rally.
At its session low after the Fed statement, the S&P 500 came within a few points of entering a bear market – or a 20 per cent decline from its recent closing high set on 29 April.
According to a Reuters poll, the United States faces one-in-four odds of slipping back into recession, though the economic outlook was seen as raising the likelihood of new Fed action.
Even some investors hoping for action from the Fed acknowledged the central bank’s options appear to be limited because the current crisis is not liquidity-driven, as it was in 2008.