Dovish Yellen Helps Wall Street To Record Highs

Dovish Yellen Helps Wall Street To Record Highs

US stock indices set new intraday records Tuesday, a reflection of the reassurance found by investors in Fed Chair Janet Yellen’s congressional testimony.  

Dovish Yellen Helps Wall Street To Record Highs
Dovish Yellen Helps Wall Street To Record Highs

Ms Yellen revealed that the FOMC is unlikely to introduce a rate hike for at least the next two monetary policy meetings, a more dovish stance than had been expected.

 ‘The FOMC's assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings,’ she said in her prepared testimony. Furthermore, she indicated that the Fed would give advance warning of any rate hike by amending its forward guidance.

The comments helped stock index benchmarks advance, setting new intraday record highs for both the Dow Jones and the S&P 500 Index. By early afternoon in New York, the Dow Jones was up 93 points or 0.51% at 18,210. The S&P 500 rose 0.20% to 2113.8.

Among the leaders was Home Depot ($HD), which gained 4% after reporting better-than-expected fourth-quarter earnings and revenue.

The lengthening of expectations regarding when the Fed will raise rates may have helped to lift the stock market, but it hasn’t helped the dollar, as we might expect.  USD/CAD slid 0.52% to 1.2504 and AUD/USD climbed 0.31% to 0.7825. The greater risk appetite in the market did mean the dollar fared better against the safe-haven Japanese yen though, climbing 0.09% to Y118.91.

Economic data has on the whole been more positive than negative today. The Case-Shiller home price index, which gauges real estate price changes in 20 major cities across the US, jumped 0.9% for December, on a seasonally-adjusted basis, following an upwardly-revised 0.8% gain in November.

Unadjusted, prices were 4.5% higher from a year ago. Yesterday’s existing home sales report showed weak demand in January, raising some questions about whether prices have carried  this momentum into 2015, and investors will be keeping a close eye on Thursday’s FHFA house price index for more pricing information.

The flash reading for February of Markit’s services PMI suggests the service sector has enjoyed a surge this month. The PMI increased to the heavily expansionary level of 57.0 from 54.0 at mid-month January, a result that comfortably exceeds expectations. The strength of the report comes in spite of weather disruptions in the North East during the period in question and should shore up expectations for Q1 GDP.

The Conference Board’s consumer confidence index was not so favourable, showing a dip from January. January’s 103.8 reading was the highest level in over seven years, though, so a decline to 96.4 is not a disastrous result.  The unusually frigid weather conditions could be one possible explanation for the diminished levels of optimism, and we will have to wait to see if this is a temporary dip or the start of a more lasting trend.

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