U.S. stocks closed sharply higher on Wednesday after the Federal Reserve kept interest rates unchanged but hinted at the possibility of one rate hike later this year.
"The Federal Reserve did what we thought they should've done, which was nothing. The data were not supportive of a rate hike," said Phil Orlando, chief equity strategist at Federated Investors. "So when the Fed said no rate hike'; the data does not support it, you saw a knee-jerk rally that the Fed got it right for once."
The Dow Jones industrial average closed about 160 points higher after the announcement, with Boeing contributing the most gains. The index had briefly dipped in negative territory ahead of the Fed's announcement.
"It was basically what I expected," said Peter Cardillo, chief market economist at First Standard Financial. "I think the real question over the next several weeks, as we get the next batch of data, will be whether December will be a rate hike of 50 basis points."
The S&P 500 gained 1.1 percent, with energy leading advancers. The Nasdaq composite hit a fresh all-time intraday high, and closed at a new all-time high as the iShares Nasdaq Biotechnology ETF (IBB) gained 0.62 percent. Both indexes had briefly turned negative before the announcement.
"The markets liked what they saw, and there wasn't much reason for them not to," said Chuck Self, CIO of iSectors. "The sectors that benefit from low rates have done well" since the announcement. The S&P's real estate sector turned positive after trading more than 1 percent lower.
"Going into the meeting, we knew three things. First, the data had gotten a little mixed," said Daniela Mardarovici, portfolio manager of the BMO TCH Core Plus Bond Fund. "Second, the Fed doesn't like to raise rates without the market expecting it. Third, there is an election right around the corner."
"We do think the Fed wants to normalize, ... but three months is a very long time and the data the Fed looks at is facing a lot of headwinds," she said.
Fed officials lowered their expectations for rate hikes in the years ahead Wednesday but teed up a likely move before the end of 2016. "The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives," the Fed's policymaking committee said in a statement.
"It was pretty much a done deal that we weren't going to get a rate hike today. This meeting has really been about setting the stage for a December hike and what happens after that. The fact that three voters dissented is interesting, and it is pretty clear from the dots that the Fed plan on hiking in December this year as things stand," Luke Bartholomew, investment manager at Aberdeen Asset Management, said in an email after the announcement. "A December hike is by no means inevitable though. We've been in the situation before where the Fed has aligned their guns only to balk at the last minute."