Stock Market Today: Stocks Soar as Fed Hikes Rates

The Fed raised its key interest rate as expected and projected several more rate increases this year.

Fed Chair Jerome Powell
Fed Chair Jerome Powell
(Image credit: Getty Images)

Stocks started the day on solid footing, with the three major benchmarks all sporting gains of at least 1.5% in the lead-up to the Federal Open Market Committee's (FOMC) mid-afternoon policy announcement.

Trading got dicey in the immediate aftermath of the Fed's decision, though, with markets paring some of this earlier upside.

The central bank raised its key interest rate by 25 basis points – a basis point is one-one hundredth of a percentage point – or 0.25%, as widely expected, and forecast at least six additional rate hikes this year.

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"Today's Fed meeting offered some level of clarity to investors in that they are no longer waiting to make significant steps to tighten current monetary policy," says Charlie Ripley, senior market strategist for Allianz Investment Management.

And the updated version of the Fed's economic projections and forecasts for policy rates "emphasizes an urgency coming from the Fed" and "a level of hawkishness" we have not seen for some time, Ripley adds.

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The major benchmarks quickly shook off this post-meeting dip to rally hard into the close. The Nasdaq Composite outpaced its peers, surging 3.8% to 13,436, as Chinese tech stocks like Pinduoduo (PDD (opens in new tab), +56.1%) and Baidu (BIDU (opens in new tab), +39.2%) bounced back after several days of sharp selling.

The S&P 500 Index (+2.2% at 4,357) and the Dow Jones Industrial Composite (+1.6% at 34,063) also finished the day with impressive gains.

stock price chart 031622

(Image credit: YCharts)

Other news in the stock market today:

  • The small-cap Russell 2000 surged 3.1% to 2,030.
  • U.S. crude futures fell for a third straight day, retreating 1.5% to settle at $95.04 per barrel.
  • Gold futures shed 1.1% to finish at $1,909.20 an ounce.
  • Bitcoin jumped 2.7% to $40,844.00. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
  • Starbucks (SBUX (opens in new tab)) gained 5.2% after Kevin Johnson announced he would step down as CEO after five years in the top spot. Johnson will be replaced on an interim basis by founder and former CEO Howard Schultz.
  • Micron Technology (MU (opens in new tab), +9.0%) got a big boost after Bernstein analyst Mark Li upgraded the chipmaker to Outperform from Underperform (the equivalents of Buy and Sell, respectively), saying Russia's invasion of Ukraine will likely not be disruptive to the DRAM market. The analyst also expects DRAM prices to rise later this year.

Don't Fear the Fed

While Wall Street has collectively fretted over the expected resumption of rate hikes during the past few months, investors shouldn't automatically fear this shift in Fed policy.

"Investors need to remember that Fed rate hikes usually happen near the middle of the economic cycle, with potentially years left of gains in stocks and the economy," says Ryan Detrick, chief market strategist for LPL Financial. "In fact, a year after the first hike in a cycle has been fairly strong."

Specifically, across the six times the Fed has started a rate-hiking cycle between 1988 and 2015, the S&P 500 has averaged nearly 14% gains over the subsequent 12 months.

Still, investors looking to give themselves an even better chance of success in the current environment might look toward dividend-growth stocks. Their rising payouts help counter the effects of inflation and keep their yields more competitive with bonds … and better still, they historically outperform regardless of rates' direction.

Some investors prefer aggressive dividend growers – like these 14 stocks that have doubled their payouts of late – as they can be a way to rapidly improve your portfolio yield. Others, however, prefer a track record of reliability, which typically leads them to the ranks of the Dividend Aristocrats and their decades of dividend growth. But even within these 66 stocks are a number of cliques for investors looking to achieve different goals.

Today, we've highlighted five stocks for those looking for a little calm amid the market's choppy waters – in addition to dividend prowess, they also boast extremely low volatility compared to both the broader market and their Aristocrat peers.

Karee Venema
Contributing Editor, Kiplinger.com

With over a decade of experience writing about the stock market, Karee Venema is an investing editor and options expert at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at Schaeffer's Investment Research. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.