MARKET SNAPSHOT: Stock Market Gains On Dovish Yellen
Tech shares on track for fourth day of gains
U.S. stocks advanced on Wednesday as Federal Reserve Chairwoman Janet Yellen emphasized the central bank's gradual approach to normalizing monetary policy and expressed optimism about the economy in congressional testimony.
Stocks saw little movement after the Fed released its regional survey of economic conditions known as the Beige Book.
The S&P 500 advanced by 19 points, or 0.8%, to 2,445 with all 11 main sectors trading higher. Real estate, technology and materials shares rose 1% or more.
The Dow Jones Industrial Average added 134 points, or 0.6%, to 21,543, trading above its previous closing high set last month and briefly touching an intraday record of 21,580.79 earlier in the session. DuPont (DD), Microsoft Corp.(MSFT) and Home Depot Inc.(HD) were the best performers among blue-chip companies, with gains of more than 1%.
Meanwhile, the Nasdaq Composite Index rose 64 points, or 1%, to 6,257, and was on track for its fourth straight day of gains.
Normalizing monetary policy means that investors need to dispense with the idea that the Fed was ever responsible for propping up the stock market or the economy, where a rate increase is not a huge event market moving event but part of the normal rate-hike cycle, said Aaron Anderson at Fisher Investments in emailed comments.
"Yellen is dovish by nature," said Anderson. "If she weren't trying to get monetary policy somewhere closer to normal before her term ends in February 2018, she would probably move even more slowly."
"This is what a dovish rate hike cycle looks like and the stock market is liking it," said Michael Antonelli, equity sales trader at Robert W. Baird & Co., referring to the Fed's plans to lift interest rates and reduce its $4.5 trillion asset portfolio without disrupting stock and bond markets that have been supported by crisis-era quantitative-easing programs.
"It was all about whether we will have two more rate hikes this year and it seems like the Fed instead will be using the balance sheet rather than Fed-funds rates to normalize monetary policy," he said.
Yellen's remarks come as other central bankers have been expressing a desire to taper easy-money policies that have been in place in the aftermath of the 2008-'09 financial crisis. A so-called more hawkish tilt by global central bankers also had led some to believe that the Fed might be encouraged to ramp up its pace of rate increases despite sluggish inflation.
"It seems like [Yellen's] dialing back a little bit of the hawkish sentiment from last time," said Karyn Cavanaugh, senior market strategist at Voya Financial. "She's back to looking at inflation a little bit more. The market was a little worried but she's back to the same dovish Yellen."
The Fed said a shortage of qualified workers has limited hiring (http://www.marketwatch.com/story/feds-beige-book-says-worker-shortage-limits-hiring-2017-07-12) and characterized U.S. economic growth as "slight to moderate," according to the central bank's Beige Book.
The yield on the 10-year Treasury note fell 4 basis points to 2.316% as bond prices, which move inversely to yields, rose.
Yellen said "the evolution of the economy will warrant gradual increases in the federal-funds rate over time to achieve and maintain maximum employment and stable prices."
See:Live blog and video of Yellen's testimony before House panel (http://blogs.marketwatch.com/capitolreport/2017/07/12/live-blog-and-video-of-yellens-testimony-before-house-panel/)
Beyond monetary policy, political tensions, which pressured the U.S. dollar lower on Tuesday, continued to weigh on greenback Wednesday. The dollar bought Yen113.06 Japanese yen , down from Yen113.94 in late Tuesday trade.
See:Is Janet Yellen still calling the tune in financial markets? (http://www.marketwatch.com/story/is-janet-yellen-still-calling-the-tune-in-financial-markets-2017-07-10)
In other Fed-related news on Wednesday, Kansas City Fed President Esther George was scheduled to give a speech in Denver on the economic outlook and the Fed's balance sheet.
Stock movers: Shares in NRG Energy Inc.(NRG) soared 22% after the company launched transformation plan (http://www.marketwatch.com/story/nrg-energy-reveals-transformation-plan-to-cut-costs-slash-debt-and-divest-assets-2017-07-12) to cut costs, slash debt and divest assets.
Snap Inc.(SNAP) shares fell 1.1%, adding to a 9% fall on Tuesday (http://www.marketwatch.com/story/snap-downgraded-to-equal-weight-by-one-of-its-lead-underwriters-2017-07-11), when it fell further below its initial-public-offering price.
Shares of PayPal Holdings Inc.(PYPL) and Square Inc.(SQ) traded higher after one analyst suggested (http://www.marketwatch.com/story/paypal-should-buy-square-analyst-says-and-square-hits-a-new-high-2017-07-11) PayPal should acquire Square. PayPal shares rose 3.7%, while Square shares advanced 1.7%.
United Continental Holdings Inc.(UAL) shares rose 4.2% after investment firms raised their price targets on the airline operator.
Energy companies advanced, tracking a 1.5% rise in oil prices (http://www.marketwatch.com/story/oil-extends-gains-after-upbeat-us-production-data-2017-07-12). Shares of Exxon Mobil Corp.(XOM) added 0.7% and Chevron Corp.(CVX) gained 1%.
Shares of Fastenal Co.(FAST) declined 1.2% following an earlier gain after a well-received earnings report (http://www.marketwatch.com/story/fastenal-shares-jump-76-premarket-after-earnings-beat-2017-07-12).
Other markets: Asian stocks closed mixed (http://www.marketwatch.com/story/asian-market-gains-take-a-timeout-as-currencies-rise-2017-07-11), while Europe staged solid gains across the board (http://www.marketwatch.com/story/european-stocks-rise-lifted-by-oil-firms-and-burberry-2017-07-12).
Gold (http://www.marketwatch.com/story/gold-tries-for-third-straight-win-as-investors-settle-in-for-yellens-policy-update-2017-07-12) rose 0.4% to settle at $1,219.10 an ounce and all other key metals were also on the rise.
--Sara Sjolin in London contributed to this article.
(END) Dow Jones Newswires
July 12, 2017 14:48 ET (18:48 GMT)