NEW YORK (AP) — The stock market had a swift and clear reaction to the Federal Reserve's decision to trim its stimulus efforts: That wasn't so bad after all.
Stocks surged Wednesday, lifting the Dow Jones industrial average nearly 300 points to another record, after the Fed decided the economy was strong enough for it to begin a modest reduction of its bond purchases.
"Investors should see this as a vote of confidence for the economy," said Kristina Hooper, head of U.S. investment strategies for Allianz Global Investors.
The central bank also tempered the impact of its pullback by signaling that it plans to keep short-term interest rates at record lows for longer than previously thought.
Investors had long anticipated the Fed would pull back on its purchases, but did not think it would happen until next year.
Because the market had grown accustomed to stimulus, some investors had worried about a decline in stocks once the market got less rocket fuel.
Instead, the Dow jumped 292.71 points, or nearly 2 percent, to 16,167.97 — another all-time high for the blue-chip index. Shortly before the Fed announcement at 2 p.m., the Dow was up just 47 points.
The broader Standard & Poor's 500 index rose 29.65 points, or 2 percent, to 1,810.65 and the Nasdaq composite rose 46.38 points, or 1 percent, to 4,070.06. All 10 sectors of the S&P 500 ended the day higher, with health care and banking up the most.
The rally adds to what has already been a historic run for stocks. The S&P 500 is up nearly 27 percent, its best yearly performance since the dot-com boom of the late 1990s.
The Fed's decision removes a huge amount of uncertainty for investors, something they hate. The fate of the stimulus program had hung over investors' heads since May. Now that investors have an outline for how the Fed will pull back, they can move forward.
"The Fed believed the market could handle it," said Art Steinmetz, president and chief investment officer at OppenheimerFunds.
With no economic downturn on the horizon, stocks are expected to continue their rise in 2014. Market strategists predict gains of 6 percent to 8 percent.
Starting in January, the Fed will reduce its bond-buying program to $75 billion a month from $85 billion. The reductions, referred to on Wall Street as "tapering," will be the first step toward winding down a program that has been in place, in one form or another, since the financial crisis.