Equities rallied and bond yields dropped Wednesday as the Federal Reserve appeared to open the door to rate cuts. The Dow Jones industrial average, the S&P 500 and the Nasdaq all advanced 1.4 percent. US Treasury yields dropped while the dollar and oil prices rose.

The sum of Fed statements and projections led markets to price in a strong expectation of 25 basis point rate cuts at the March, May and June policy council meetings, according to the CME FedWatch tool. Initial buying on the Fed policy announcement attracted additional buyers as equity players don't want to miss out on the rally at a seasonally strong time of year. The prospect of rate cuts while growth continues has played into expectations for a soft landing, which has fueled hopes for profits to rebound. Better than expected producer price figures added to risk sentiment too.

Gains were across the board, with small-cap stocks showing big gains in keeping with the theme of broadening market strength in addition to the megacaps and tech stocks that have tended to outperform. Among sectors, best were communications services, technology, utilities, and real estate

Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.

Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.