The Federal Reserve implemented the biggest rate hike in two decades on Wednesday, and the outcome could not have been worse for bears, states Jon Markman, editor of Strategic Advantage.

The benchmark S&P 500 (SPX) surged 3% to 4,300, just below the 20-day moving average. The oddity is that bears got almost everything they were hoping for. The Fed raised short-term rates by 50 basis points, signaled that more increases are in the offing, and Fed Chairman Powell later said fighting inflation remains a top priority.

Yet most bears assumed the Fed would go even further. When Powell ruled out a 75-basis-point increase in June, the rally gained steam and never looked back. While the strong close on Wednesday was impressive, bulls are far from being out of the woods. The biggest rallies occur within the context of larger bearish trends. There is important overhead resistance for the S&P 500 at 4,374 and 4,491, the 200-day moving average.

Getting above these levels will not be easy. Critical support is now 4,157 on a closing basis.

The Upshot

The Dow Jones Industrial Average (DJI) climbed 2.8% to 34,061.06 after trading lower earlier in the day. The S&P 500 was up 3% to 4,300.17 and the Nasdaq Composite (NDX) rose 3.2% at 12,964.86, with both indexes also turning course in afternoon trading.

Energy (XLE) was the top performer, with all sectors in the green. Breadth favored advancers six-one, and there were 91 new highs vs 755 new lows. Big caps on the new high list included refiners Exxon Mobil (XOM), Marathon Petroleum (MPC), Suncor Energy (SU), Valero (VLO), and Phillips 66 (PSX).

The US ten-year yield fell 2.4 basis points to 2.93%. West Texas Intermediate crude oil futures jumped $5.52 to $107.93 a barrel.

Following the decision to raise interest rates on Wednesday, members of the Federal Open Market Committee are ready to consider further increases of that size at future meetings, Federal Reserve Chairman Jerome Powell said Wednesday at a press conference after the meeting.

The central bank's Federal Open Market Committee set its federal funds rate to a range of 0.75% to 1%, in line with Wall Street expectations. The unanimous move followed a 25-basis-point hike in March, which was the first increase since 2018. The rate had been anchored near zero since the start of the Covid-19 pandemic in March 2020.

The FOMC said it will start reducing the securities on its balance sheet in June. The balance sheet measures will start with caps of $30 billion in US Treasury securities and $17.5 billion in mortgage-backed securities for three months. After that, the monthly caps will be raised to $60 billion and $35 billion, according to the panel.

In other economic news, the Institute for Supply Management's services index fell to 57.1 in April from 58.3 in March, compared with expectations for an increase to 58.5 in a survey compiled by Bloomberg.

In company news, Starbucks (SBUX) plans to invest $1 billion this fiscal year in prioritized areas such as increased pay, modernized training and collaboration, and store innovation, according to a company statement. Shares jumped 9.8%, the top performer on the Nasdaq 100.

Another leader on the Nasdaq was Advanced Micro Devices (AMD), up 9.1% after the chipmaker reported faster earnings and sales growth than anticipated in the first quarter while lifting its 2022 revenue outlook. Airbnb (ABNB) shares rose 7.7% after the holiday rental firm guided above the Street's projections for the second quarter and beat revenue and loss estimates for the previous three months.

Learn more about Jon Markman here...