Dow up 224: Stocks finish strong after Fed rate lift-off

Stocks built on earlier gains Wednesday, the Dow ending up 224 points at 17,749, after the Federal Reserve's historic decision to hike interest rates for the first time in nearly 10 years came with a reassurance that future rate increases will be "gradual."

At the closing bell, the Dow Jones industrial average stood 1.3% higher. At the time of the Fed announcement two hours earlier it was up about 80 points, and before that the blue chips were up 165 points. Wednesday's gains come after back-to-back triple-digit point gains on Monday and Tuesday.

Liftoff! Fed raises rates for first time since '06

First take: It's about time, Fed!

Wall Street bulls viewed the Fed's widely expected quarter-point increase as a sign of an improving economy. Heading into decision day, skeptics warned that the move to higher rates could cause market volatility and upheaval.

Other stock indexes also rallied on the news. The broader Standard & Poor's 500 stock index ended 1.5% higher and the Nasdaq composite gained 1.5%.

"The Fed delivered exactly what was expected – a quarter-point baby step now and a gradual pace to follow," said Greg McBride, chief financial analyst at Bankrate.com.

The Fed delivered the news in a policy statement, which read: "Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 0.25% to 0.50%"

Prior to the increase, the rate was pegged at 0% to 0.25%.

Wall Street also got the forward guidance it wanted to hear on the pace of future hikes in 2016: "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases," the statement read. The key word, of course, was "gradual."

Jeffrey Saut, a market strategist at Raymond James, says the rate hike is a good sign and that it should not derail the stock market going forward in a major way.

It "does not mean the stock market party is over because historically stocks do pretty well after the first Fed tightening," he says. "Moreover, the Fed's (decision to) raise rates today should signal to the markets that the Fed thinks the economy has gained enough velocity that it can tolerate higher interest rates"

Saut is a bull and thinks there is the potential for a "rip-your-face-off" rally for stocks.

Fed rate hike: Watch what they say, not what they do

Many market skeptics, however, fear that the coming Fed rate-hike cycle will cause major issues for financial markets as investors get weaned off of easy money and look to exit certain portfolio positions that had benefited from low rates.

"To be clear, we have no idea what the Fed does and we certainly have no idea to the initial reactions to what the Fed decides to do," says Gary Kaltbaum, president of Kaltbaum Capital Management, and a vocal critic of the Fed's money-printing policies in recent years. "We just know a good many areas of the stock market remain in poor shape with the major stock indices holding up much, much better than the average stock."

Adam Shell on Twitter: @adamshell.