US Markets

Stocks surge as Fed green lights taper; record closes for Dow, S&P 500

Market rally: A lot more at play than QE

U.S. stocks surged on Wednesday, with the S&P 500 and Dow industrials closing at records, after the Federal Reserve moved to cut stimulus, saying it expects the labor market will continue to improve and vowing to keep interest rates low.

"Investors are looking past the taper and looking at the strength of the economy that is perceived with this news," said Chris Gaffney, senior market strategist at EverBank.

"The Fed did a great job telegraphing it to the markets, as stocks are moving in the opposite direction than you'd think," he added of equities rallying on the news.

The Fed said it to $75 billion a month from $85 billion, an initial move to unwinding the stimulus that the central bank began to help the economy heal from the recession that came after the near meltdown of the country's financial system.

At a news conference, Fed Chairman Ben Bernanke said the central bank would likely make similar moderate steps at future meetings so long as the data support such moves.

Shares of fell sharply after the automotive company in 2014. Lennar reported a 13 percent increase in , with its shares rallying along with those of other homebuilders. Shares of FexEx slid after the global shipper posted quarterly results that missed Wall Street estimates. AMC Entertainment rallied in the movie-theater operator's first day as a public company.

Major U.S. Indexes

The Dow Jones Industrial Average rallied 292.71 points, or 1.8 percent, at 16,167.97, surpassing its Nov. 27 record.

The rose 29.65 points, or 1.7 percent, to 1,810.65, also a record finish. Health care led gains that included all 10 of the S&P 500's major sectors.

The Nasdaq jumped 46.38 points, or 1.2 percent, to 4,070.06, finishing at a 13-year high.

"I think this is the response of the market saying this is exactly what we needed. We got the right amount of taper, and we got it at the right time. I was like most people. I thought the odds were less than 50/50 that it was going to happen. The market's reaction tells me this is exactly what the market wanted," said Randy Frederick, managing director of active trading at Charles Schwab.

The Chicago Board Options Exchange Volatility Index fell, halting a six-day rise.

declined slightly against the currencies of major U.S. trading partners, with the yield on the 10-year used in figuring mortgage rates and other consumer loans rose 3 basis points to 2.87.

for February delivery settled at $1,235 an ounce, up $4.90, or 0.4 percent, during the regular trading session, and were volatile in electronic trading after the Fed decision. added 58 cents, or 0.6 percent, to end at $97.80 a barrel.

Fed Tapers: Bond market unchanged, equities not listening

Regardless of the Fed's decision, "the overriding theme is that rates are going to stay low for several more years," said Dan Greenhaus, chief global strategist at BTIG LLC,.

"The housing numbers this morning are part of a larger series of data points showing the economy picking up steam heading into the new year," said Greenhaus of the report that had housing starts jumping to a near six-year high in November in the latest show of strength in the housing market.

Another strategist agreed the data supports the view of an economy poised to strengthen in 2014.

The "continued buoyancy as the housing market builds momentum vindicates our stance and the latest blockbuster report did not disappoint," emailed Andrew Wilkinson, chief economic strategist at Miller Tabak.

On Tuesday, stocks closed slightly lower as Wall Street adopted a cautious tone the day before the Fed decision.

—By CNBC's Kate Gibson

Coming Up This Week:

Wednesday: Earnings from Oracle, Paychex, Herman Miller and Steelcase.

Thursday: Initial jobless claims; existing home sales for November; Philadelphia Fed Survey; Leading indicators for November. Earnings from Nike, Red Hat, Darden, Accenture, Rite-Aid, Worthington Industries and Tibco Software.

Friday: Third-quarter GDP. Earnings from Blackberry, Carmax and Walgreen.

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