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U.S. stocks closed higher on Wednesday with the Dow industrials setting its first closing record in nearly a month as Federal Reserve Chairwoman Janet Yellen emphasized the central bank’s gradual approach to normalizing monetary policy and expressed optimism about the economy in congressional testimony.
The Dow Jones Industrial Average DJIA, +0.57% closed up 123.07 points, or 0.6%, at 21,532.14, its first new closing high since June 19. The blue-chip average also touched an intraday record of 21,580.79 earlier in the session.
The S&P 500 SPX, +0.73% advanced by 17.72 points, or 0.7%, to finish at 2,443.25 with all 11 main sectors trading higher. Technology, real estate and materials shares all finished up 1% or more.
Meanwhile, the Nasdaq Composite Index COMP, +1.10% rose 67.87 points, or 1.1%, to 6,261.17, for a fourth straight day of gains.
Stocks saw little movement after the Fed released its regional survey of economic conditions known as the Beige Book.
Normalizing monetary policy means that investors need to dispense with the idea that the Fed was ever responsible for propping up the stock market or the economy, where a rate increase is not a huge market-moving event but part of the normal rate-hike cycle, said Aaron Anderson at Fisher Investments in emailed comments.
“Yellen is dovish by nature,” said Anderson. “If she weren’t trying to get monetary policy somewhere closer to normal before her term ends in February 2018, she would probably move even more slowly.”
“This is what a dovish rate hike cycle looks like and the stock market is liking it,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co., referring to the Fed’s plans to lift interest rates and reduce its $4.5 trillion asset portfolio without disrupting stock and bond markets that have been supported by crisis-era quantitative-easing programs.
“It was all about whether we will have two more rate hikes this year and it seems like the Fed instead will be using the balance sheet rather than Fed-funds rates to normalize monetary policy,” he said.
Yellen’s remarks come as other central bankers have been expressing a desire to taper easy-money policies that have been in place in the aftermath of the 2008-’09 financial crisis. A so-called more hawkish tilt by global central bankers also had led some to believe that the Fed might be encouraged to ramp up its pace of rate increases despite sluggish inflation.
“It seems like [Yellen’s] dialing back a little bit of the hawkish sentiment from last time,” said Karyn Cavanaugh, senior market strategist at Voya Financial. “She’s back to looking at inflation a little bit more. The market was a little worried but she’s back to the same dovish Yellen.”
The Fed said a shortage of qualified workers has limited hiring and characterized U.S. economic growth as “slight to moderate,” according to the central bank’s Beige Book.
The yield on the 10-year Treasury note TMUBMUSD10Y, -1.89% fell 4 basis points to 2.319% as bond prices, which move inversely to yields, rose.
Yellen said “the evolution of the economy will warrant gradual increases in the federal-funds rate over time to achieve and maintain maximum employment and stable prices.”
Beyond monetary policy, political tensions, which pressured the U.S. dollar lower on Tuesday, continued to weigh on greenback Wednesday. The dollar bought ¥113.19 Japanese yen USDJPY, -0.70% down from ¥113.94 in late Tuesday trade.
