Dow futures up nearly 300 points following Fed decision to aggressively wind down asset purchases

U.S. stock futures rose sharply in early Thursday trading after the Federal Reserve signaled it would be aggressive on tapering and sees three interest rate hikes in 2022.

Futures on the Dow Jones Industrial Average jumped about 278 points. S&P 500 and Nasdaq 100 futures added 0.6% each.

Shares of companies that have done well in previous rate-hiking cycles led premarket gainers. Materials stocks FMC Corp. and Freeport-McMoRan both rose more than 3% ahead of the opening bell. Bank stocks also rose across the board, with JPMorgan Chase, Citigroup and Bank of America all up about 0.6%.

In transportation news, Delta Air Lines reported that it now expects to see a profit of $200 million in the fourth quarter, after previously projecting a loss. Shares rose 2.2% on the news.

In other central banking news, the Bank of England announced it is hiking its key policy rate by 15 basis points to 0.25%. Markets were awaiting a separate policy decision from the European Central Bank. There also is more economic news on tap, with weekly jobless claims and housing starts out at 8:30 a.m. ET.

Following the Fed news, traders accelerated their own expectations for interest rate increases. Fed funds futures trading now points to a 63% chance of the first quarter-percentage-point increase coming in May 2022, with chances also rising to about 44% that the central bank could make its first move as soon as March, according to the CME FedWatch Tool.

Stocks traded in negative territory throughout the regular session Wednesday and turned higher ahead of Fed Chairman Jerome Powell’s press conference in the afternoon at the conclusion of the two-day Federal Open Market Committee meeting. The Dow added 383 points, or 1.08%. The S&P 500 rose 1.63% and the tech-heavy Nasdaq Composite jumped 2.15%.

“It appears that the Fed had successfully communicated this news ahead of time and although the stock market moved higher during the press-conference, the sectors leading the market higher (like utilities and healthcare) are both very defensive sectors and indicate some concern about the future path of the economy,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

The Fed will begin reducing the pace of its asset purchases in January and buy just $60 billion of bonds each month going forward, compared to $90 billion in the month of December. That decision follows recent inflation data showing a 6.8% surge in November, which is higher than expected and the fastest rate since 1982.

“The notion that elevated inflation levels would be transitory has finally been thrown out the window by the Fed and the latest policy adjustments are reflective of a committee that doesn’t want to miss the next train leaving the station,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

Health-care stocks UnitedHealth and Amgen gained ground Wednesday, rising 3.1% and 2.6%, respectively.

Adobe and Accenture are scheduled to report quarterly earnings before the opening bell. FedEx and Rivian will report after the bell.

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