Major U.S. stock indices closed higher on Friday as the market shook off initial fears stemming from the Fed's discount rate hike and saw the positive implications for such move.
The S&P 500 Index closed up 2.40 points, or 0.22 percent, at 1,109.15. The Dow Jones Industrial Average closed up 9.53 points, or 0.9 percent, at 10,402.42. The Nasdaq Composite closed up 0.10 percent.
Transportation was the leading sector, with FedEx (NYSE:FDX) closing up 2.07 percent and Union Pacific (NYSE:UNP) closing up 1.93 percent.
Retailers, boosted by J.C. Penney (NYSE:JCP) earnings and upbeat guidance, also performed well. J.C. Penney closed up 6.55 percent and Macy's (NYSE:M) closed up 2.09 percent.
With the notable exception of Citigroup (NYSE:C) and JPMorgan (NYSE:JPM), which ended lower, Wall Street firms generally closed up for a modest gain.
In Thursday after-hours trading and early in the Friday morning session, the U.S. stock market was weighed down by news that the Federal Reserve increased the discount rate to 0.75 percent from 0.5 percent.
The dollar rallied immediately after the announcement at 4:30 pm on Thursday. It rallied over 100 pips against the euro in ten minutes.
However, by the close of the U.S. stock market on Friday, it had pared its gains, only up about 20 pips from the level it traded at 4:30 pm on Thursday.
The price reversals may be explained by a shift in investors' interpretation of the Fed Reserve discount rate hike.
The Fed already assured the market that the move was a further normalization of the [Fed's] lending facilities and do not signal any change in the outlook for the economy or for monetary policy.
In addition, some investors interpreted the rate hike as a sign that the market for private lending to banks had improved enough to warrant such move.
The Fed stated on Thursday that it made its move in light of continued improvement in financial market conditions.
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