Yellen Economy Optimism Boosts Stocks, Bonds Slump: Markets Wrap

(Bloomberg) -- Treasuries fell, U.S. stocks added to records and the dollar rose after Janet Yellen said gains in consumer spending, household income and American wealth are sustaining economic growth that may warrant higher interest rates.

Goldman Sachs Group Inc. closed at a record high for the first time since before the financial crisis, as banks rallied after the Federal Reserve chair said waiting too long to raise rates could disrupt financial markets. Four major American equity benchmarks closed at unprecedented levels for a second day, while the yield on the 10-year Treasury note added four basis points and the dollar strengthened. Crude advanced.

Yellen’s comments lifted the odds for a rate hike at the March meeting four points to 34 percent. While futures traders still see less than 50 percent odds for three increases this year, President Donald Trump’s vow to pursue pro-growth policies could push the Fed to pick up the pace. Inflation data Tuesday from China to American showed accelerating price gains at factories, bolstering the case for tightening before a reading on U.S. consumer price data Wednesday.

“Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” Yellen said.

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Here are the main moves in markets on Tuesday: 

Stocks

• The S&P 500 Index rose 0.4 percent to 2,337.47 at 4 p.m. in New York, for a sixth straight gain. Financial shares in the gauge jumped 1.2 percent to the highest since December 2007.
• The Dow, Nasdaq Composite Index and Russell 2000 Index also plied new highs.
• The CBOE Volatility Index fell 1.9 percent to close below 11.
• Rate-sensitive stocks fell, with real estate and utility shares pacing declines. The two have high dividend payouts that lose luster when Treasury yields rise. Banks rose the most.
• Emerging-market shares added to their highest level since July 2015.
• The Stoxx Europe 600 Index rose less than one point to extend a rally to six days that has it at highest level in more than a year.

Currencies

• The Bloomberg Dollar Index erased a 0.2 percent drop to advance 0.1 percent. U.S. wholesale prices jumped more than forecast in January did little to move the index earlier.
• Sterling weakened 0.5 percent after data showed U.K. inflation increased to 1.8 percent from 1.6 percent in December, falling short of estimates in a Bloomberg survey. The euro weakened 0.2 percent to $1.0577.

Bonds

• The yield on 10-year Treasury notes rose to 2.47 percent for a fourth day of advances.
• European bonds were mixed. The yield of German bunds due in a decade rose four basis points to 0.37 percent, while that on Italian peers rose one basis point to 2.22 percent.

Commodities

• Oil rose 0.5 percent to settle at $53.20 a barrel, rising for the fourth time in five days. Investors are weighing rising U.S. crude stockpiles against output cuts from OPEC and other producing nations.
• Gold was 0.2 percent higher to $1,228.70, following a 0.7 percent drop in the previous session. The metal has flipped between losses and gains seven times, the longest run since October.

--With assistance from Mark Barton

To contact the reporter on this story: Jeremy Herron in New York at jherron8@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Samuel Potter at spotter33@bloomberg.net.