Closing Market Summary: Stocks Rally Following Yellen TestimonyThe stock market cruised to a comfortable win on Wednesday as investors dialed back their rate-hike expectations a bit following Fed Chair Janet Yellen's semi-annual monetary policy testimony. The Dow climbed 0.6% to a new record high while the Nasdaq and the S&P 500 settled with gains of 1.1% and 0.7%, respectively.
Fed Chair Yellen came off a bit more dovish in the prepared remarks she delivered before the House Financial Services Committee, saying that "...the federal funds rate would not have to rise all that much further to get to a neutral policy stance." This statement created a sense that the Fed may in fact follow a shorter path of rate hikes that will keep the longer-run neutral level of the federal funds rate below levels that prevailed in previous decades.
Today's statement eased some of the rate-hike concerns that surfaced last week following the release of the FOMC minutes from the June meeting, which initially left the impression that the Fed plans to press on with a tightening of policy despite the persistence of below-target inflation data. At the stock market's close, the implied probability of a December rate hike had declined to 52.0% from 58.9% on Tuesday, according to the fed funds futures market.
Treasuries rallied across the curve on Ms. Yellen's remarks with the benchmark 10-yr yield dropping four basis points to 2.32%. However, currency traders were a bit more undecided in their interpretations, leaving the U.S. Dollar Index (95.49, 0.00) at its unchanged mark.
On Wall Street, all 11 sectors finished in positive territory with the top-weighted technology group (+1.3%) pacing the advance. The tech space's heaviest component by market cap--Apple (AAPL 145.74, +0.21)--struggled amid continued concerns of production and delivery delays for the newest iPhone, but mega-cap names like Facebook (FB 158.90, +3.63), Microsoft (MSFT 71.15, +1.16), and Alphabet (GOOGL 967.66, +14.13) picked up the slack, settling with gains between 1.5% and 2.3%.
Chipmakers also outperformed, pushing the PHLX Semiconductor Index higher by 1.6%, with NVIDIA (NVDA 162.51, +6.63) leading the charge. The company jumped 4.3% after NVDA shares were upgraded to 'Buy' from 'Hold' at Sun Trust.
However, on the downside, a couple of notable sectors underperformed on Wednesday, keeping the broader market's gain somewhat in check. The most influential of these groups was the financial sector (+0.1%), which was weighed down by the notion that interest rates could be suppressed for longer than some expected.
The energy sector (+0.3%) also struggled after the weekly crude inventory report from the Energy Information Administration (EIA) showed that U.S. production increased by 59,000 barrels per day last week. However, on a positive note, the EIA did report a draw of 7.6 million barrels, which was much larger than the 2.9 million barrel decline that the consensus was anticipating.
Crude oil was trading around 2.5% above its flat line going into the EIA release, but gave back a good portion of that gain in the aftermath. The energy component settled higher by 1.1% at a price of $45.53/bbl.
As for the remaining sectors--consumer discretionary (+0.8%), industrials (+0.6%), materials (+1.1%), health care (+0.7%), consumer staples (+0.6%), utilities (+0.9%), telecom services (+0.5%), and real estate (+1.3%)--most finished roughly in line with the benchmark index.
Wednesday's economic data was limited to the Fed's Beige Book and the weekly MBA Mortgage Applications Index:
- The Fed's Beige Book showed that economic activity expanded across all 12 Federal Reserve Districts in June at a slight to moderate pace. In addition, the majority of districts expect to see modest to moderate economic growth in the months ahead.
- The weekly MBA Mortgage Applications Index declined 7.4% to follow last week's 1.4% increase.
On Thursday, investors will receive several economic reports, including the Producer Price Index for June (consensus -0.1%) at 8:30 ET, the weekly Initial Claims Report (consensus 245,000) also at 8:30 ET, and the June Treasury Budget at 14:00 ET.
- Nasdaq Composite +16.3% YTD
- S&P 500 +9.1% YTD
- Dow Jones Industrial Average +9.0% YTD
- Russell 2000 +5.0% YTD