A wild day in the stock market ended with solid gains for major averages as traders interpreted the Fed statement as a stealth easing of sorts.
"Despite three dissents--the largest number since 1992--the committee adopted an even easier policy stance than expected," Goldman Sachs' economics team wrote in reaction to the FOMC statement. "First, the committee now anticipates that rates will stay on hold 'at least through mid-2013.' Second, the committee effectively signaled an easing bias, saying that it is prepared to employ additional easing steps as appropriate."
Aided by that sentiment, the Dow rose 430 points, or 4%, to 11,240 after trading as low as 10,613 intraday. Meanwhile, the S&P gained 4.7% to 1172.53 and the Nasdaq rose 5.3% to 2482.50.
The stock market was no means alone in experiencing dramatic moves on Tuesday. Treasury prices surged after the Fed statement, which included a downgrade of its economic assessment, sending the 10-year yield to an all-time low of 2.03% before it settled at 2.19%.
Gold hit a new record intraday at $1782.50 before settling up 1.6% at $1740. The flight-to-safety trade sent Swiss francs surging further as well and crude futures below $80 for the first time since September, before risk appetites resurfaced later in the day.
Major averages only recovered a small percentage of the big losses suffered in prior 11 trading days, when the S&P slumped 16%. Still, Tuesday's late-day strength is likely to encourage bulls to believe the worst has passed, at least for now.
Doug Roberts, chief investment strategist at Channel Capital Research and the author of Follow the Fed, believes the market will remain in a "prolonged volatility environment" until the economy fully breaks down or the Fed announces another round of QE. To Roberts, the market still has another 100 S&P points to go down before fully pricing in an economy, about which the Fed says "downside risks…have increased."
In the meantime, he remains bullish on gold and small-cap stocks which historically do well in an environment of negative real interest rates. The Russell 2000 rebounded sharply on Tuesday, rallying 6.6% after falling more than 20% in the prior 12 sessions.