Yellen rally hits day 2, sending stocks to 2016 highs
Wall Street celebrated the second day of the Janet Yellen rally Wednesday as stocks closed at 2016 highs again following the Federal Reserve chief's market-friendly speech that stressed the U.S. central bank is in no rush to increase interest rates.
The Dow, which closed up nearly 100 points Tuesday after Yellen's dovish speech, gained another 84 points, or 0.5%, to close at 17,717 Wednesday. The broader Standard & Poor's 500 stock index was 0.4% higher and the Nasdaq composite gained 0.5%. Both the Dow and S&P 500 have closed at 2016 highs two consecutive days and have more than completely wiped out losses from the worst start to a year ever for stocks.
With one trading day left in the first quarter, the Dow is up 1.7% for 2016 and the S&P 1.0%. Only the Nasdaq remains in the red for 2016, down 2.8%. This is a stark turn from the dark days of early February, when the three major U.S. indexes had 2016 losses ranging from 10% to 15% when the market hits its low for the year.
Yellen, who said it is prudent for the Fed to "proceed cautiously" in its push to normalize interest rates, powered a global stock market rally. Aside from a drop in Japan, stocks rallied sharply in Hong Kong, mainlaind China, India, Australia, London, Germany and Paris.
Yellen: Fed to move 'cautiously' on rate hikes
Helping stocks was another decline in the value of the U.S. dollar vs. a basket of foreign currencies. A lower dollar helps sales and profits of U.S. multinationals, as well as commodities like oil and emerging markets.
"A more cautious Fed should be good news for markets," Robert Tipp, chief investment strategist at Prudential Fixed Income, noted via e-mail. "Yellen's speech continued the path blazed at the Fed's March meeting. (Yellen) deemphasized the signs of strength and higher inflation in the U.S. economy, biasing her comments towards exercising caution given downside risks and pockets of weakness, particularly on the international front."
At its March 16 meeting, the Fed dialed back the number of interest rate hikes it plans this year from four to two. And many Wall Street pros say there is now a chance the Fed might not hike rates at all this year. The Fed hiked rates off of zero percent back in December, when it hike rates a quarter of a percentage point.
"Yellen is effectively admitting that 'liftoff' was an error," Don Luskin, chief investment officer at TrendMacro, noted in a report to clients before the opening bell. "It's one and done until the environment changes substantially.
Fresh data now all about the economy
The Wall Street Journal's U.S. dollar index was down 0.3% Wednesday, after declining yesterday following Yellen's comments. The dollar's sharp rise in 2015 and earlier this year had been a major drag on stock prices and corporate earnings.
"Yellen and other central bankers around the world finally realize that the only thing that matters for monetary global stability is the cooling off of the sizzling dollar," Brett Ewing, chief market strategist at First Franklin, told USA TODAY via e-mail.