Stocks trade near record highs as investors digest Fed's latest move

U.S. stocks rose slightly in early trading Thursday trading the Federal Reserve signaled it would be aggressive on tapering and sees three interest rate hikes in 2022.

The Dow Jones Industrial Average climbed 150 points. The S&P 500 rose 0.2% and was on track for a record close. The Nasdaq Composite was flat.

Thursday's moves came a day after stocks rallied in the previous session as the Federal Reserve announced a more aggressive plan to wind down its asset purchases and hike rates in 2022.

Shares of companies that have done well in previous rate-hiking cycles led early gainers on Thursday, with materials stock Freeport-McMoRan rose more than 3%. Bank stocks also rose across the board, with JPMorgan Chase, Citigroup and Bank of America all up about 1%.

"The fact that the FOMC acknowledged new COVID variants as a threat to the economic recovery that could alter policy going forward, as well as the generally optimistic tone from Powell in the presser, helped spark a relief rally as the Fed meeting was viewed as being not-as-hawkish-as-feared," Tom Essaye of the Sevens Report said in a note on Thursday.

In transportation news, Delta Air Lines reported that it now expects to see a profit of $200 million in the fourth quarter, after previously projecting a loss. Shares rose more than 1% on the news.

Corporate earnings looked to be a weak spot for the market on Thursday, with shares of Adobe and Lennar falling in early trading after underwhelming quarterly reports.

Following the Fed news, traders accelerated their own expectations for interest rate increases. Fed funds futures trading now points to a 63% chance of the first quarter-percentage-point increase coming in May 2022, with chances also rising to about 44% that the central bank could make its first move as soon as March, according to the CME FedWatch Tool.

The Fed will begin reducing the pace of its asset purchases in January and buy just $60 billion of bonds each month going forward, compared to $90 billion in the month of December. That decision follows recent inflation data showing a 6.8% surge in November, which is higher than expected and the fastest rate since 1982.

"The notion that elevated inflation levels would be transitory has finally been thrown out the window by the Fed and the latest policy adjustments are reflective of a committee that doesn't want to miss the next train leaving the station," said Charlie Ripley, senior investment strategist for Allianz Investment Management.

In other central banking news, the Bank of England announced it is hiking its key policy rate by 15 basis points to 0.25%. The European Central Bank also announced a plan to slow its emergency asset purchases.

On the economic data front, weekly jobless claims came in slightly higher than expected, while housing starts for November were much stronger than economists projected after declining in the prior month.