Yellen optimism on economy boosts stocks as bonds slump

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

Goldman Sachs stock closed at a record high for the first time since before the financial crisis, as banks rallied after Yellen 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.

FP_Stocks_Bloomberg

Yellen’s comments lifted the odds for a rate hike at the March meeting four points to 34%. While futures traders still see less than 50% 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.

Here are the main moves in markets on Tuesday:

STOCKS
The S&P 500 rose 0.4% to 2,337.47 at 4 p.m. in New York, for a sixth straight gain. Financial shares in the gauge jumped 12% to the highest since December 2007. The Dow, Nasdaq and Russell 2000 also plied new highs. The CBOE Volatility Index fell 1.9% 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.

BONDS
The yield on 10-year Treasury notes rose to 2.47% 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%, while that on Italian peers rose one basis point to 2.22%.

Bloomberg News
Markets and indexes Stocks Bonds S&P
MORE FROM FINANCIAL PLANNING