NEW YORK – U.S. stocks rose, sending benchmark indexes to all-time highs, after the Federal Reserve said it will reduce the pace of its monthly bond purchases and expressed confidence in the labor market recovery.
Homebuilders rallied after the Fed said it may hold interest rates near zero even if unemployment falls below the 6.5 percent rate the central bank previously cited as a likely catalyst for an increase. CVS Caremark Corp. jumped 4.3 percent after boosting its dividend. Jabil Circuit Inc. slumped 21 percent as earnings missed analysts’ estimates.
The Standard & Poor’s 500 Index advanced 1.7 percent to 1,810.65 at 4 p.m. in New York, surpassing its previous record close reached on Dec. 9. The Dow Jones Industrial Average surged 292.71 points, or 1.8 percent, to an all-time high of 16,167.97. Both gauges posted their biggest gains in two months. About 8.1 billion shares changed hands on U.S. exchanges, the busiest trading since September.
“With the Fed acknowledging the economy continues to recover, and reiterating low rates and accommodative policy will remain for quite some time, it reinforces the Goldilocks scenario of a Fed backstop and equities are running with it,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $290 billion.
The central bank announced plans to cut its monthly bond purchases to $75 billion from $85 billion, taking its first step toward unwinding the unprecedented stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from the worst recession since the 1930s.
“In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the committee decided to modestly reduce the pace of its asset purchases,” the Federal Open Market Committee said Wednesday.
The policy makers added that it “likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” the Fed’s 2 percent goal.