Stocks ended near session highs Wednesday, reversing their early declines, as the market cheered news that the Fed will not raise interest rates until at least 2014 in addition to maintaining its highly accommodative stance to support the recovery.
The Dow Jones Industrial Average rallied 81.21 points, or 0.64 percent, to finish at 12,756.96, led by DuPont and Caterpillar .
The S&P 500 added 11.41 points, or 0.87 percent, to end at 1,326.06. The Nasdaq jumped 31.67 points, or 1.14 percent, to finish at 2,818.31.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, closed near 18.
All key S&P sectors finished higher, led by utilities and materials.
“The fact that [the Fed] extended low rates for another year and then left the door wide open for another stimulus…implies that things are still not as good,” said Kenny Polcari, managing director at ICAP Equities. “This is a manufactured rally—there’s nothing fundamental about this.”
The Fed kept its funds range unchanged near zero and extended its pledge not to boost interest rates until at least 2014, in order to help bolster the weak but modestly growing economy. The Fed has kept its key interest rate at a record low near zero for three years.
Meanwhile, the Fed also downgraded its outlook for economic growth this year to between 2.2 percent to 2.7 percent but pruned its projection for the unemployment rate, saying it expects the rate to fall to a less severe 8.2 percent.
Apple surged to trade at all-time highs after the iPod maker's quarterly results blew past expectationsafter U.S. consumers snapped up near-unprecedented numbers of iPhones and iPads. In addition, a whopping 15 brokerages raised their price target on the firm.
United Tech finished slightly lower even after the diversified manufacturer reported a jump in earnings. Meanwhile, fellow Dow component Boeing said its profit gained, thanks to stronger commercial airplane deliveries.
Yahoo delivered earnings that met expectations, but shares of the search-engine firm slipped after revenue fell short of forecasts, and the company said revenue for the current quarter would also be shy of expectations. Meanwhile, analysts were mixed on the stock—Citigroup raised its price target on the firm, while Barclays and Jefferies lowered their price target.
Nvidia slipped after the chipmaker unexpectedly slashed its sales outlook, due to a shortage of hard drives in the personal computer supply chain and declining mobile chip sales. And at least five brokerages cut their price targets on the firm.
Elsewhere, Advanced Micro Devices gained after the chipmaker beat earnings estimates, but revenue missed slightly.
Fellow chipmaker SanDisk is scheduled to post earnings after-the-bell tonight in addition to Amgen , Netflix and Symantec .
Among banks, Citigroup said it is considering making more layoffsin its securities and banking unit this year if the bank does not see a meaningful pick up in revenue.
Morgan Stanley and Goldman Sachs slipped after JPMorgan downgraded both firms to "neutral" from "overweight."
Roche Holding is offering $5.7 billion in cash to buy U.S. gene sequencing company Illumina in a hostile takeover bid.
Treasury prices edged higherafter the government auctioned $35 billion in 5-year notes at a high yield of 0.899 percent and a bid-to-cover of 3.17.
On the economic front, pending home sales fell in December, after hitting the highest level in a year and a half, according to the National Association of Realtors.
Weekly mortgage applications retreated, giving back some of the previous week's gains as interest rates climbed, according to the Mortgage Bankers Association.
Meanwhile, the euro zone debt crisis and the state of the global economy continue to remain in focus as political and business leaders meet for the annual World Economic Forumin Davos this week.
At the State of the Union address, Obama proposed sweeping changes in the tax code—most notably, a minimum 30 percent effective rate on millionaires—to eliminate inequalities that allow the wealthy to pay lower rates than the middle class.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
Coming Up This Week:
THURSDAY: Durable goods orders, jobless claims, new home sales, leading indicators, 7-yr note auction; Earnings from AT&T, Caterpillar, 3M, Nokia, AutoNation, Bristol-Myers, Time Warner Cable, Motorola Mobility, Starbucks
FRIDAY: GDP, consumer sentiment; Earnings from Chevron, P&G, DRHorton
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