Tuesday, February 14, 2017
U.S. equities traded mixed Tuesday as investors digested testimony from the top Federal Reserve official.
The Dow Jones industrial average chopped around the flatline, with Caterpillar contributing the most losses and Goldman Sachs the most gains. The S&P 500 slipped 0.1 percent, with real estate lagging. The Nasdaq composite also fell 0.1 percent.
“It was expected of her to be a little hawkish,” said Adam Sarhan, CEO of 50 Park Investments. “From her perspective, the stock market is at all-time highs and the economic data is improving, so it’s very prudent for her to be hawkish.”
U.S. Treasury yields ticked higher following Yellen’s remarks, with the benchmark 10-year note yields trading around 2.48 percent and the short-term two-year note yield advancing to 1.25 percent.
The dollar, meanwhile, erased earlier losses against a basket of currencies, with the euro near $1.058 and the yen around 114.
Tuesday also marked the first time Yellen testifies following President Donald Trump‘s election.
Economic data have broadly improved since Nov. 8, with sentiment and inflation metrics all ticking higher. The NFIB small business index, which measures small-business confidence, hit 105.9, the best read since December 2004.
“As a prudent banker … and if she listens to the message of the market since the election she should lay the March meeting clearly on the table for a rate hike,” said Peter Boockvar, chief market analyst at The Lindsey Group.
Market expectations for a rate hike next month rose to 23 percent from 16 percent following Yellen’s remarks, according to Jefferies.
Stocks in the U.S. have rallied sharply since Trump’s election on hopes of lower corporate taxes, fiscal spending and deregulation. On Monday, the three large-cap indexes, along with the small-caps Russell 2000, hit record highs. Trump hinted last week that the administration will be releasing a “phenomenal” tax plan in the next two or three weeks.
“the Fed has talked about three rate hikes for this year, but if they see fiscal stimulus coming down the hill, they might be forced to raise in March,” said David Kelly, chief global strategist at JPMorgan Funds. “There’s a big wait-and-see attitude in terms of, do you pay for what the president promised through spending cuts or do you let the deficit grow.”
“I think there should be some nervousness in the market about that,” he said.
On tap this week:
10:00 a.m. Fed Chair Janet Yellen before Senate Banking Committee
1:00 p.m. Dallas Fed President Rob Kaplan
1:15 p.m. Atlanta Fed President Dennis Lockhart on crisis, recession, recovery
8:30 a.m. Retail sales
8:30 a.m. CPI
8:30 a.m. Empire State manufacturing
9:15 a.m. Industrial production
10:00 a.m. Fed Chair Yellen testifies before House Financial Services Committee on economy
10:00 a.m. Business inventories
10:00 a.m. NAHB survey
12:45 p.m. Philadelphia Fed President Patrick Harker on economy
4:00 p.m. TIC data
8:30 a.m. Jobless claims
8:30 a.m. Housing starts
8:30 a.m. Building permits
8:30 a.m. Philadelphia Fed survey