Global stocks hit record high after Fed tapers bond purchases but signals patience over interest rates

Jerome Powell, Fed Chair, spoke cautiously about interest rates Wednesday. Eric Baradat/Getty Images
After the Federal Reserve reduced its bond purchases, global stocks surged to new records on Thursday.

Investors felt relieved that the Fed indicated it would be patient in raising interest rates.

Thursday's rate hike could be initiated by the Bank of England, a major central bank.

After the Federal Reserve reduced its support for the bond markets but indicated that it doesn't expect to raise interest rates soon, global stocks rose to a new record high on Thursday.

S&P 500 futures in the US rose 0.1% while Dow Jones futures were little affected, as their linked benchmarks recorded record closings Wednesday. Futures of the tech-heavy Nasdaq 100 rose 0.4%. This is because fast-growing companies are more attractive when interest rates drop.

The MSCI all-world Index rose 0.16% to 754.08 on Thursday, setting a new record.

Overnight, China's CSI 300 index grew 0.99% in Asia, while Tokyo's Nikkei 225 climbed 0.93%.

Europe's Stoxx 600 index was up 0.52% in the early trading. London's FTSE 100 was 0.22% lower ahead of a Bank of England key interest rate decision.

Wednesday's Federal Reserve announcement stated that it will reduce its $120 billion per month bond purchase by $15 billion in November, December and January. This could lead to the end of the program by June 2022.

To support lending during the coronavirus crises, the asset-purchase program was initiated in March 2020. It is intended to stabilize the US bond market and lower long-term borrowing costs.

But Fed officials said stronger-than-anticipated inflation and a fall in unemployment made now an appropriate time to dial down the huge amounts of support the central bank has been providing.

The Fed's announcements for weeks about its intention to "taper off" purchases at the close of the year prompted a muted reaction from the market.

Continue reading: Bank of America names 13 stocks poised to rebound in January following a year of underperformance due to tax loss harvesting

After Fed Chair Jerome Powell outlined a cautious approach for raising interest rates, US stocks ended at record highs on the fourth consecutive day. He stated that "We don’t believe it is a good moment to raise interest rates, because we want the labor market to heal further."

David Mericle, a Goldman Sachs analyst, stated that they believed the Federal Open Market Committee's decision to be balanced. They stated that policymakers adopted a "dovish approach" to raising interest rates, but acknowledged that the central bank might be forced to act if employment and inflation rises.

Analysts expect that tapering will continue at $15 billion per month and that the FOMC will raise interest rates in July 2022, soon after tapering ends.

Investors turned their attention to the Bank of England as they expect it to be the first central bank to raise interest rate during the coronavirus era. This announcement will take place later in the day.

After the Fed reduced its market activity, bond yields rose, which are inversely related to prices. They were unchanged on Thursday with the yield of the US Treasury's 10-year note falling to 1.57%.

Oil futures rose ahead OPEC+'s meeting Thursday. It is expected that OPEC+ will continue to implement its plan for gradual increases in production. After news of US-Iran negotiations and an increase in US inventories, prices fell Wednesday. Brent crude oil rose 1.37% to $83.10 per barrel, while WTI crude was $81.73 per barrel.

Bitcoin fell 1.5% to $61,829, just 0.1% below the record high of $66,000 at the end October.