NEW YORK (CNN/Money) - U.S. stocks rallied by Wednesday's close, with investors shrugging off earlier confusion after the Federal Reserve cut interest rates aggressively yet changed its view on the economy to neutral. But an iffy forecast from Cisco after the bell could stop the run cold on Thursday.

The Nasdaq composite (up 17.82 to 1418.99, Charts), the Dow Jones industrial average (up 92.74 to 8771.01, Charts) and the Standard & Poor's 500 index (up 8.37 to 923.76, Charts) all rose around 1 percent. Stocks shot up sharply right after the Fed announcement, then dived just as sharply before rallying into the close.

"We had this little blip of volatility [after the Fed cut], but then it's like the market said, 'Maybe we like this,'" Stephen Porpora, managing floor broker at William O'Neil & Co., told CNNfn's Street Sweep.

After the close of trade, Cisco Systems (CSCO: up $0.27 to $12.96, Research, Estimates) reported a fiscal first-quarter profit of 14 cents a share, a penny better than analysts expected and an improvement from 4 cents a year earlier. The company's revenue was in line with estimates, but an improvement over the revenue decline posted a year earlier. That news initially sent the stock higher in after-hours trading.

But traders didn't like what they heard on the conference call: Revenue in the next quarter was supposed to be flat to up slightly -- it will instead be flat to down 3 percent to 4 percent.

"Cisco is a proxy for the rest of tech," said Brian Finnerty, managing director at Melhado, Flynn & Associates. "They touch every level of technology in their business."

Late in Wednesday's session, the Federal Reserve announced that it had cut its target for the federal funds rate, an overnight bank lending rate, by half a percentage point to 1.25 percent, a new 40-year low, in an attempt to rev up the struggling economy.

Surprising Fed watchers, the central bank also shifted its bias about the future direction of economic policy to a "neutral" stance, saying the risks of further economic weakness and inflation are evenly balanced.

The switch is "presumably to squash speculation that they are embarking on a new sequence of rate cuts," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a late afternoon note. "This is sensible -- they can always change their mind if they have to, but in the near term it will quiet the markets. It is also consistent with their medium-term view that the economy will indeed recover in the not-too-distant future."

After 11 rate cuts in 2001, the Fed left the fed funds rate at 1.75 percent until Wednesday. But with a recent spate of weak economic data and a tough labor market overshadowing October's stock rally, the central bank had been widely expected to cut interest rates at this meeting, by at least a quarter percentage point. Some market watchers had predicted the half-percentage-point cut.

And with a Republican sweep of Congress in Tuesday's elections, there was some speculation that the results could put a cut on hold altogether.

"It is my belief that the Fed is targeting the equity markets with this more aggressive provision of liquidity," William Sullivan, senior economist at Morgan Stanley, told CNNfn. "The Fed wants the stock market to do some of the heavy lifting to get this economy moving."

Stocks zig-zagged through morning trade Wednesday, with investors pulled between cheering a Republican sweep of Congress and concerns ahead of the Federal Reserve's interest rate decision.

In Tuesday's election, the GOP took enough seats to capture the Senate and strengthened its hold on the House of Representatives. Some stock market watchers, who had been concerned about the impact of partisan gridlock, saw this result as a positive, as GOP dominance could make tax cuts and a number of pro-business bills easier to enact.

Investors also started the day with the news of the resignation of Securities and Exchange Commission Chairman Harvey Pitt amid criticism about the speed and manner in which he handled the corporate accounting scandals that tore through Wall Street over the past year.

Of late, he had been under pressure to resign due to his recent choice for the head of a new accounting oversight board, ex-FBI chief William Webster, who had previously chaired the audit committee of a company facing fraud accusations.

Following the Fed news, chip and hardware stocks rallied sharply, with Sun Microsystems (SUNW: up $0.40 to $3.57, Research, Estimates), Applied Materials (AMAT: up $1.04 to $16.85, Research, Estimates) and other key tech issues taking the lead.

Stocks that might benefit from a Republican-controlled Congress also gained Wednesday, with shares of pharmaceuticals such as Merck (MRK: up $1.80 to $56.00, Research, Estimates) and aerospace and defense firms such as Boeing (BA: up $2.06 to $33.58, Research, Estimates) and Honeywell (HON: up $1.29 to $27.08, Research, Estimates) jutting higher.

In addition, techs got a little lift after No. 1 chipmaker Intel (INTC: up $0.80 to $19.15, Research, Estimates) reiterated its fourth-quarter results estimate. The No. 1 chipmaker still expects revenue to fall from the year-earlier period, due to continued weak economic conditions and a lack of economic recovery in its business. However, investors seemed to take comfort in the fact that the company has not seen additional deterioration in its business since its last update in mid-October, following the release of its third-quarter results.

Treasury prices rose only modestly after the Fed news, sending the 10-year note yield down to 4.04 percent from 4.07 percent late Tuesday. Treasury prices and yields move in opposite directions. The dollar weakened against the yen and the euro.

Light crude oil futures fell 37 cents to $25.77 a barrel. Gold slipped.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by more than 2 to 1 as 1.62 billion shares changed hands. On the Nasdaq, advancers beat decliners more than 5 to 3 as 2.10 billion shares traded.