By Mark DeCambre and Barbara Kollmeyer, MarketWatch
Closely watched 10-year Treasury yield eases to ease to
2.87%
U.S. stocks jolted higher in the final hour of trading on
Friday, erasing weekly losses as persistent hand-wringing about
rising bond yields and the reemergence of long-dormant inflation
receded on Wall Street.
A report from the Federal Reserve, a precursor to Federal
Reserve Chairman Jerome Powell's comments in front of Congress next
week,
(http://www.marketwatch.com/story/fed-on-track-for-3-rate-hikes-in-2018-but-4-no-sign-in-report-to-congress-2018-02-23)offered
few signs that the central bank would adopt a more aggressive
monetary-policy tacked.
What are the main benchmarks doing?
The Dow Jones Industrial Average rose 347.51 points, or 1.4%, to
25,309.99, benefiting from sharp gains in components Goldman Sachs
Group Inc., underlining rising demand for bank stocks which are
likely to profit as benchmark yields march higher. The index has
been up for two straight weeks, representing its largest two week
climb, up 4.6%, since Nov. 18, 2016, according to WSJ Market Data
Group.
The S&P 500 index added 43.34 points, or 1.6%, to 2,747,
buttressed by broad sector gains and highlighted by advances of
more than 2% in the energy and technology sectors. The two straight
weeks of gains for the equity index, up 2.9% over that period, are
its most since Feb. 13, 2015.
The tech-laden Nasdaq Composite Index , meanwhile, surged 127.30
points, or 1.8%, to end at 7,337.39, snapping a four-session skid,
and putting the index just 2.2% shy of its Jan. 26 peak at
7,505.77. It produced its best two-week stretch, up 6.7%, since
Oct. 31, 2014.
For the week, the Dow climbed 0.4%, the S&P 500 logged a
weekly climb of 0.6%, while the Nasdaq Composite notched a return
of 1.4% over the period, outstripping its equity benchmark
peers.
Read:This doggy Dow stock can teach you smart value investing
tricks
(http://www.marketwatch.com/story/how-ges-stumble-can-teach-you-to-be-a-smart-value-stock-investor-2018-02-22)
What could drive markets?
In its semiannual monetary-policy report, the Fed signaled that
it saw broad improvement in the U.S. economy and pointed to a
pickup in inflation toward the end of last year, but didn't suggest
that a rise in prices warranted more aggressive policy action
(http://www.marketwatch.com/story/fed-on-track-for-3-rate-hikes-in-2018-but-4-no-sign-in-report-to-congress-2018-02-23).
Indeed, the Fed stuck to its forecast for inflation to hover at
or below its 2% target in 2018. The 12-month rate of inflation
based on the Fed's preferred PCE index stood at 1.7% in
December.
The Fed's summary comes ahead of newly minted Powell's testimony
about the economy before Congress next week.
Powell's testimony arrives ahead of the Fed's key
monetary-policy convention next month, but after a release of
minutes for January on Wednesday rattled investors, already
fretting about inflation and bond yields drifting higher.
Wednesday's minutes
(https://www.federalreserve.gov/monetarypolicy/fomcminutes20180131.htm)
sparked a downdraft in equities as the yield of the 10-year
Treasury note hit a fresh four-year high above 2.956%, undercutting
appetite for assets perceived as risky like stocks. Most recently,
the 10-year Treasury note was down about basis points at 2.87%.
On Thursday, bond yields moderated after St. Louis Fed President
James Bullard cast doubt on the likelihood of four rate rises this
year
(http://www.marketwatch.com/story/feds-bullard-casts-doubt-on-expectations-of-four-interest-rate-hikes-this-year-2018-02-22),
dampening expectations of a faster pace of action.
Read:Here's why stock-market investors need to keep an eye on
the yield curve
(http://www.marketwatch.com/story/heres-why-stock-market-investors-need-to-keep-an-eye-on-the-yield-curve-2018-02-22)
Separately, comments from Treasury Secretary Steven Mnuchin were
drawing attention. In an interview with Bloomberg
(http://www.marketwatch.com/story/mnuchin-says-us-wages-can-rise-without-boosting-inflation-2018-02-23),
Mnuchin brushed aside concerns over rising wages, saying these
didn't necessarily have to trigger a rise in overall inflation. The
Fed policy report appeared to echo that view.
Opinion:3 reasons stock-market investors should think it really
is different this time
(http://www.marketwatch.com/story/3-reasons-stock-market-investors-should-think-it-really-is-different-this-time-2018-02-22)
What are strategists saying
Doug Cote, chief market strategist at Voya Investment
Management, said strong corporate earnings, healthy readings of
manufacturing justify an upbeat outlook for stocks and bond yields
rising off ultralow levels.
"With that economic growth interest rates are rising and that is
a good thing. There is no way the economy can be growing at 3%, as
it is now, without the 10 year yield also going up but this is like
a high-quality problem," Cote said.
"Because although it will discount equities and create more
volatility, it is a sign that secular stagnation,
disinflation...are finally in the rearview mirror and now we're in
a normal market," he said, referring to a period framed by
easy-money policies across much of the globe in the wake of the
2007-09 financial crisis.
"I think it was very impressive move for stocks [Friday] after
seeing these heavy market selloffs," said J.J. Kinahan, chief
strategist at TD Ameritrade.
He said dovish remarks by the Fed and the monetary policy report
helped eased market jitters.
"I think we are set up for an interesting Monday morning. Can we
build on this momentum and go forward or is this as quick fade,"
Kinahan said
What did Fed speakers say?
New York Fed President William Dudley spoke out in favor of the
effectiveness of quantitative easing
(http://www.marketwatch.com/story/quantitative-easing-will-help-the-next-time-interest-rates-fall-to-zero-dudley-says-2018-02-23)
as a stimulus tool, arguing against a paper from Wall Street
economists saying that it only had a modest impact
(http://www.marketwatch.com/story/good-news-the-feds-shift-to-quantitative-tightening-might-not-be-as-painful-as-expected-2018-02-23).
Cleveland Fed President Loretta Mester said the central bank
could look into changing its policy framework
(http://www.marketwatch.com/story/fed-could-start-to-look-at-new-policy-frameworks-later-this-year-mester-says-2018-02-23-13913016)
later in the year, which could mean a change to its current 2%
inflation target.
San Francisco Fed President John Williams said the economy is
steadily improving and sees a positive outlook which warrant
gradual rate hikes, speaking at the City Club of Los Angeles on
Friday.
Which stocks were moving?
Shares of Blue Buffalo Pet Products Inc.(BUFF) soared 17.2% in
after General Mills Inc.(GIS) announced an $8 billion buyout of the
company
(http://www.marketwatch.com/story/general-mills-buying-pet-foods-maker-blue-buffalo-in-8-billion-cash-deal-2018-02-23).
Shares of General Mills were off 3.6%.
Hewlett-Packard Enterprises Co.(HPE) shares jumped about 10.5%
after the enterprise-focused tech group reporting a strong fiscal
first quarter. Read:HP Enterprise earnings jolt stock, but there
isn't much to be excited about
(http://www.marketwatch.com/story/hp-enterprise-earnings-jolt-stock-but-there-isnt-much-to-be-excited-about-2018-02-22)
Shares of HP Inc.(HPQ) rose 3.5% after the consumer-focused tech
company beat earnings expectations and raised its full-year
forecast
(http://www.marketwatch.com/story/hp-earnings-beat-raised-forecast-send-stock-higher-2018-02-22).
Shares of Xcerra Corp.(XCRA) could be active after the company
that provides testing technology for semiconductors and electronics
said it would terminate its sale to a Chinese group
(http://www.marketwatch.com/story/xcerra-calls-off-580-million-deal-amid-scrutiny-2018-02-23),
saying federal approval was too hard to get for the $580 million
deal. The company's shares ended up 0.2%.
How are other assets performing?
European stocks finished higher on the day taking cues from U.S.
equities
(http://www.marketwatch.com/story/european-stocks-struggle-to-find-impetus-to-follow-us-lead-higher-2018-02-23),
while Asian stocks rebounded
(http://www.marketwatch.com/story/asian-stocks-slide-following-wall-street-selloff-2018-02-21)
to mark a second-straight week of gains.
(http://www.marketwatch.com/story/asian-stocks-slide-following-wall-street-selloff-2018-02-21)Gold
prices slipped, ending Friday trade lower
(http://www.marketwatch.com/story/gold-on-track-for-biggest-weekly-drop-this-year-2018-02-23),
while the dollar , as gauged by the ICE U.S. Dollar Index , rose
0.2% to 89.950. Oil prices settled in the green
(http://www.marketwatch.com/story/oil-on-track-for-second-consecutive-weekly-rise-2018-02-23)
after rig-count data.
(END) Dow Jones Newswires
February 23, 2018 17:01 ET (22:01 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.