[BRIEFING.COM] Stocks surged across the board Wednesday as investors rallied around upbeat remarks from Bernanke that implied policy makers may finally take a breather after two years of interest rate increases. Aside from the Fed Chairman's seemingly dovish commentary that sent short sellers fleeing for cover following weeks of market losses, signs of a potential pause pushed bond yields to session lows and allowed equity investors to look beyond a disappointing CPI report, using solid earnings news and another pullback in oil as additional catalysts to get back into a market that was showing signs of being oversold.
At his semi-annual testimony before the Senate Banking Committee, Bernanke acknowledged that "moderation in economic growth" will lead to a "gradual decline in inflation in coming quarters," welcoming news that overshadowed a fourth straight 0.3% rise in core CPI. That left the year-over-year increase at 2.6%, which is well above the Fed's comfort zone of 1.75-2.00%. Be that as it may, Bernanke's commentary superseded a report that typically has the potential to move stocks and bonds in noticeable fashion.
The optimism about a possible pause was further echoed in fed funds futures, which were implying a roughly 90% chance of a 1/4% rate increase to 5.50% on August 8th following the CPI report, but moved back to pricing in only a 68% chance of another hike and are no longer pricing in any tightening at the three FOMC meetings thereafter.
Of the 10 sectors trading higher, the most influential of them all -- Financials -- paced the way to the upside. The sector surged 2.7% and climbed back into positive territory for the year after J.P. Morgan Chase (JPM 42.06 +1.35) said Q2 net income more than tripled and retail banking earnings at Bank of America (BAC 49.01 +0.57) doubled. A decline in borrowing costs provided additional sector support. The yield on the 10-yr note was as high as 5.17% but closed at 5.05% and more than erased yesterday's 16-tick sell-off that lifted the benchmark 10-yr yield to 5.13%.
Health Care also turned in a gain of more than 2.0%. Managed Healthcare -- one of the worst performing industry groups in Q2 -- garnered extra bargain hunting interest after UnitedHealth (UNH 50.66 +2.26) beat analysts' Q2 forecasts on a 57% rise in revenue and increased its full-year profit outlook. Abbott Labs (ABT 45.80 +1.10) topping estimates and raising guidance also helped Health Care nearly halve its 5.0% year-to-date decline.
Technology, which was under pressure early on after Yahoo (YHOO 25.20 -7.04) merely matched forecasts, as Q2 profits fell 80% on lighter than expected sales and the company delayed the much-anticipated release to its search advertisement system, found renewed buying interest. Despite some uncertainty regarding EPS reports from bellwethers Qualcomm (QCOM 36.73 -0.67) and eBay (EBAY 25.93 -0.66) after the bell, Dow component International Business Machines (IBM 76.15 +1.89) beating Wall Street's expectations by a penny helped restore some optimism about tech's growth prospects.
Even Energy, which was under pressure throughout most of the session in sympathy with falling oil prices, and provided an opportunity for investors to rotate into underperforming areas like Tech and Health Care, closed higher. With Bernanke recently saying that "much of the upward pressure on overall inflation this year has been due to increases in the prices of energy," crude oil futures closing below $73 per barrel, following unexpected builds in weekly gasoline and crude oil inventories, was also seen as welcome news for a market reeling from concerns about rising energy prices. NYSE Adv/Dec 2839/477...Nasdaq Adv/Dec 2326/713
3 hr 59 min ago
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