Dovish Yellen Speech Leads To Strength On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved mostly higher over the course of the trading session on Tuesday after recovering from an initial move to the downside. The markets benefited from a positive reaction to remarks by Federal Reserve Chair Janet Yellen.

The major averages all closed firmly in positive territory, although the Nasdaq outperformed its counterparts. While the Nasdaq soared 79.84 points or 1.7 percent to 4,846.62, the Dow rose 97.72 points or 0.6 percent to 17,633.11 and the S&P 500 climbed 17.96 points or 0.9 percent to 2,055.01.

With the gains, the Dow and the S&P 500 set three-month closing highs, while the Nasdaq reached its best closing level in well over two months.

The strength that emerged on Wall Street came as Yellen's speech to the Economic Club of New York was seen as dovish regarding the outlook for interest rates.

In prepared remarks, Yellen said she considers it appropriate for the Fed to proceed cautiously in adjusting monetary policy given the risks to the economic outlook.

The Fed chief said the caution is especially warranted because the central bank's ability to use conventional monetary policy to respond to economic disturbances is asymmetric with rates still at such low levels.

"If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilize the economy," Yellen said.

She added, "By contrast, if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero."

Yellen also repeatedly reiterated her stance that only gradual increases in interest rates are likely to be warranted in coming years.

The speech largely offset recent speculation that the Fed will raise interest rates at its next meeting toward the end of April.

On the U.S. economic front, the Conference Board released a report this morning showing a rebound in consumer confidence in the month of March.

The Conference Board said its consumer confidence index climbed to 96.2 in March from an upwardly revised 94.0 in February.

Sector News

Gold stocks showed a substantial move to the upside in reaction to Yellen's speech, resulting in a 6.2 percent jump by the NYSE Arca Gold Bugs Index. With the gain, the index further offset the steep drop seen last Wednesday.

The rally by gold stocks came as Yellen's remarks weighed on the value of the U.S. dollar, which in turn led to an increase by the price of gold. Gold for April delivery climbed $15.70 to $1,235.80 an ounce.

Significant strength was also visible among technology stocks, as reflected by the rally by the tech-heavy Nasdaq. Networking, internet, and computer hardware stocks posted particularly strong gains.

Commercial real estate stocks also turned in a strong performance, driving the Morgan Stanley REIT Index up by 2 percent. The index ended the session at its best closing level in almost a year.

Brokerage, biotechnology, housing, and utilities stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Tuesday. Japan's Nikkei 225 Index slipped by 0.2 percent, while China's Shanghai Composite Index tumbled by 1.3 percent.

Meanwhile, European stocks moved mostly higher on the day. The French CAC 40 Index advanced by 0.9 percent and the German DAX Index rose by 0.4 percent, although the U.K.'s FTSE 100 Index bucked the uptrend and closed just below the unchanged line.

In the bond market, treasuries climbed firmly into positive territory on the heels of Yellen's remarks. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.6 basis points to 1.814 percent.

Looking Ahead

Trading on Wednesday may be impacted by the release of payroll processor ADP's report on private sector employment in the month of March.

The ADP data comes ahead of the release of the Labor Department's more closely watched monthly jobs report on Friday.