NEW YORK (AP) — The Dow Jones Industrial Average surged more than 900 points and the S&P 500 had its biggest gain in two years Wednesday after Federal Reserve Chair Jerome Powell downplayed the likelihood of an even larger interest rate hike after announcing the sharpest rate increase since 2000.

The remarks, which came after the Fed announced its decision to raise its key interest rate by double the usual amount, allayed concerns that the central bank was on its way to a massive increase of three-quarters of a percentage point at its next meeting in June.

The S&P 500 climbed 3%, its best day since May 2020. The benchmark index is now up 4.1% this week, which represents roughly half its monthly loss in April. The Dow jumped 2.8% and the Nasdaq climbed 3.2%. The indexes had all briefly been in the red earlier in the day.

Bond yields fell after the Fed’s announcement. The yield on the 2-year Treasury dropped to 2.64% from 2.78% late Tuesday, an unsually large move. The yield on the 10-year Treasury, which influences mortgage rates, fell to 2.93% from 2.96% It had initially jumped to 3.01% until Powell’s remarks during a press conference.

The comments came shortly after the Fed said it raised its benchmark short-term interest rate by a half-percentage point, it’s most aggressive move since 2000, and signaled further large rate hikes ahead. The increase raised the Fed’s key rate to a range of 0.75% to 1%, the highest point since the pandemic struck two years ago.

The Fed also announced details of how it will start reducing its huge holdings of Treasury debt and mortgage-backed securities, a tool the central bank has used to help keep long-term interest rates low.

The S&P 500 rose 124.69 points to 4,300.17. The Dow climbed 937.27 points to 34,061.06. The Nasdaq gained 401.10 points to 12,964.86.

Smaller company stocks also posted solid gains. The Russell 2000 rose 51.07 points, or 2.7%, to 1,949.92.

The latest move by the Fed had been widely expected, with markets steadying this week ahead of the policy update, but Wall Street was concerned the Fed might elect to raise rates by three-quarters of a percentage point in the months ahead.

Powell eased those concerns, saying the central bank is “not actively considering” such an increase.

The VIX, an index that measures how worried investors are about upcoming drops for the S&P 500, fell about 11%, one of its biggest drops this year, after Powell’s remarks.

Earlier, Powell also said the economy can make it through rate increases without falling into a recession.

“The economy is strong and well positioned to handle tighter monetary policy,” he said, though he cautioned “it’s not going to be easy.”

Investors are worrying about whether the Fed can pull off the delicate dance to slow the economy enough to halt high inflation but not so much as to cause a downturn. Still, the market cheered the Fed’s latest moves.

“It’s certainly heady days when the market doesn’t blink at the most aggressive rate hike in 22 years, but keep in mind this was extremely well-telegraphed and priced in,” said Mike Loewengart, managing director, investment strategy at E-TRADE from Morgan Stanley.

The central bank also announced that it will start reducing its huge $9 trillion balance sheet, which consists mainly of Treasury and mortgage bonds, starting June 1.

The market’s gains were widespread Wednesday. Roughly 85% of the stocks in the S&P 500 notched gains, with technology companies powering much of the advance. Apple rose 4.1%.

Energy stocks were among the biggest gainers following a 5.3% increase in the price of U.S. crude oil after Europe took a step closer to placing an embargo on Russian oil as that country continues its war against Ukraine. Any embargo could strain oil supplies and push prices still higher. Exxon Mobil rose 4%.

The Fed’s aggressive shift to raise interest rates comes as rising inflation puts more pressure on businesses and consumers. Higher costs for energy and other commodities have prompted many businesses to raise prices and issue cautious forecasts to their investors. Wall Street and economists are worried that higher prices on everything from food to gas and clothing will prompt a slowdown in consumer spending and crimp economic growth.

The worries have worsened with Russia’s invasion of Ukraine and its impact on energy and key food commodity prices. China’s increasingly stricter lockdown measures because of rising COVID-19 cases have also added concerns about slower economic growth because of supply problems and shipping backlogs.

Wall Street is closely watching economic data for any signs that inflation might be easing. Consumer prices surged in March, but a measure of inflation that excludes food and energy had its smallest monthly rise since September. That was a welcome sign for investors and more of the same in the coming months cold temper inflation concerns.

“If we can get just a few more readings showing inflation slowing, that could be the match that sparks some confidence,” said Ryan Detrick, chief market strategist for LPL Financial.

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BEIJING (AP) — China said Monday it will reduce tariffs Jan. 1 on more than 850 foreign products including frozen pork, asthma medications and some high-tech components to spur economic development.

The announcement followed an interim trade agreement with Washington in a tariff war that has rattled financial markets.

The step adds to a series of tariff cuts over the past two years that Beijing says are aimed at improving supplies of consumer goods and encouraging competition. Chinese officials say they should not be seen as concessions to U.S. pressure.

The latest step is intended to “promote the coordinated development of trade and environment,” the official Xinhua News Agency said.

Xinhua and other state media said the temporary import tariffs would be reduced to levels lower than most-favored-nation rates.

Beijing has adopted a string of market-opening measures and tariff cuts meant to help revive economic growth that slowed to a three-decade low of 6% in the latest quarter.

The Finance Ministry said the new tariff cuts would mainly apply to products in short supply and to foreign products for daily use.

They ranged from turbine valves and other industrial components to orange juice and other commodities. Many tariffs of 5% to 10% were eliminated while higher duties of up to 65% were cut by half or more.

The duty on frozen pork was cut from 12% to 8%. That would help food companies that have boosted pork imports to replenish supplies as China contends with an epidemic of African swine fever that has devastated its pig herds.

Reducing tariffs on some types of semiconductors would help high-tech industries that the ruling Communist Party wants to become world leaders.

Also Monday, the government promised to open its oil, telecom and power markets wider to private competitors as the Communist Party tries to shore up growth in the slowing, state-dominated economy.

The Cabinet said it would give private companies equal treatment with state-owned enterprises in more industries. The announcement gave no details of ownership limits or other possible restrictions on private companies or whether foreign investors would be allowed. It said a timetable was being developed.

The statement promised to “introduce market competition” in key industries including power, telecoms, railways, oil and natural gas. It said private enterprises would be allowed for the first time to carry out basic telecoms services and invest in power generation and distribution.

Beijing has ended restrictions on full foreign ownership in electric car manufacturing and says that will extend to the whole auto industry by 2021. Regulators also have promised to allow full foreign ownership in banking, insurance and other finance businesses.

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Markets are hitting fresh new highs. Optimism is in the air. A surge in the markets of ten percent (10%) once the Phase One tariff agreement is reached is expected. A rally of historical proportions is occurring. Outflows out of bond funds and into equity markets is happening at breakneck speed.

Bears are definitely being beaten down as fear of a recession ebbs and markets head into the historically best half of the year. Heading into the holidays, back to school and holiday sales start to kick in. Paired with folks going back to work, the focus of the economy shifts to, well, work. Indicators point to a strong finish through the holidays.

Supporting this upside are several positive headlines: the recent Federal Reserve report, by Chairman Powell, indicates a pause in lower rates for the near future. The Fed’s apparent comfort with the changes they made and current data makes the case for a wait and see attitude. Reasoning for the seventy-five (75) basis point decrease has been coined as a “mid-cycle adjustment,” not as a need to stave off a recession. Wall Street has responded favorably to this by brushing off any economic concerns and embracing a continuance of a bull market. Supporting this is the closing out of the third (3^rd) quarter earnings allowing the market to breath until January.

A nice upside surprise recently has been the slight lifting of the global economy. Recent negative rates seen overseas has shifted upward in light of the positive data. American treasuries have responded to the global market and U.S. rally by reversing course. Global markets have been dragging down our economy for the last several years. If there is a sustainable shift into a global expansion, the U.S. economy would be a recipient and could drive several more legs of a bull market.

When this is paired with a possible trade deal before the end of the year, you have the high probability of a rally through New Year’s. Driving this is the “Fear of Missing Out.” This is when small investors jump into the market because it has been doing well, despite the market being valued fairly and maybe even being adjudged at a rich premium.  This is not the time to buy more of what has been doing well. This is the time you ring the register and take profits. Fear by many money managers is that the high stock prices do not have any justification. In fact, the opposite is the case, with lowered expectations for many companies. With the bond market prices going down due to the fear of trade shifting to FOMO in equities, we are seeing yields rise. This is a great time to add to your fixed income positions, a great place to put profits.

Don’t let FOMO force you to buy stocks. Use FOMO to take profits.

If you have questions on a particular company or investment and would like our feedback, contact us at my email below. Our team will research and respond to you with our recommendation and opinion.

Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC

For questions or investment topics please email me afkotyuk@alpha-wealth.com.

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