U.S. stocks rallied on the heels of remarks from Fed Chief Janet Yellen as she began her two-day semi-annual Congressional monetary policy testimony. Treasury yields pulled back from a recent rebound following the Chairwoman's speech, hamstringing financials ahead of Friday's key earnings reports out of the sector. Crude oil prices extended gains, the US dollar was modestly higher in choppy trading and gold saw minor gains.
The Dow Jones Industrial Average gained 123 points (0.6%) to 21,532, the S&P 500 advanced 18 points (0.7%) to 2,443, and the NASDAQ Composite rallied 68 points (1.1%) to 6,261. In moderate volume, 794 million shares were traded on the NYSE and 1.8 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.45 to $45.49 per barrel and wholesale gasoline was unchanged at $1.52 per gallon. Elsewhere, the Bloomberg gold spot price gained $2.62 to $1,220.33 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% higher at 95.73.
Fastenal Company (NASDAQ:FAST) reported Q2 earnings-per-share (EPS) of $0.52, versus the $0.50 FactSet estimate, as revenues rose 10.6% year-over-year (y/y) to $1.1 billion, roughly in line with forecasts. The wholesale distributor of industrial and construction supplies said its sales rose due to improvement in underlying market demand, growth in its industrial vending business, and growth in new and existing onsite locations. Separately, the company announced a new stock repurchase program of up to 5 million shares. Shares gave up early gains and traded lower amid analyst concerns about potential margin headwinds facing the industry, exacerbated by competitor MSC Industrial Direct Company Inc (NYSE:MSM) quarterly report that included a miss on gross margin and weaker-than-expected guidance.
NRG Energy Inc. (NYSE:NRG $21) surged nearly 30% after the company announced a transformational plan aimed at billions in cost and margin improvements, targeted asset sales and the removal of debt.
Fed Chair Yellen sparks dovish takeaway
Federal Reserve Chairwoman Janet Yellen began her two-day semi-annual Congressional monetary policy testimony in front of the House Financial Services Committee. Yellen noted that she expects the balance sheet to shrink this year, while appearing to foster a dovish reaction in regard to the trajectory of further rate hikes as the Fed strives for policy normalization. She said, the fed funds rate remains somewhat below its neutral level and "because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance." Yellen added that because they also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to its goal.
The Fed Chief said a few unusual reductions in certain categories of prices have limited inflation and is being closely monitored. Yellen pointed out that continued strength in the labor market should support wage gains and consumer spending, while global economic growth, favorable financial conditions, the ongoing recovery in drilling activity should support business investment. "These developments should increase resource utilization somewhat further, thereby fostering a stronger pace of wage and price increases," she added.
The Federal Reserve's Beige Book, a look at business activity across the nation used as a preparation tool for the Fed's next two-day monetary policy meeting set to conclude on July 26th, was released in afternoon action. The report showed that the U.S. economy expanded across all twelve Districts in June, with the pace of growth ranging from slight to moderate.
The report also indicated that employment maintained a "modest to moderate pace of expansion," across most Districts, though the Atlanta and St. Louis Districts reported flat employment levels. Meanwhile, the report indicated that "prices continued to rise modestly in the majority of Districts, and a few Districts noted that price pressures had eased slightly."
Following Yellen's comments, Treasury yields gave back some of a recent rebound, with the yield on the 2-year note declining 3 basis points (bps) to 1.34%, while the yields on the 10-year note and the 30-year bond dropped 4 bps to 2.32% and 2.89%, respectively.
The MBA Mortgage Application Index fell 7.4% last week, following the previous week's 1.4% gain. The decline came as a 13.0% drop in the Refinance Index was met with a 2.5% decrease for the Purchase Index. The average 30-year mortgage rate rose 2 bps to 4.22%.
Today, the U.S. economic calendar will deliver the latest Producer Price Index (PPI), with a flat m/m reading expected for June, matching the result registered in May, while the core rate, which excludes food and energy, is forecasted to have increased 0.2% m/m after rising 0.3% in May. We will also receive weekly initial jobless claims, expected to have declined by 3,000 to a level of 245,000.
European stocks gain ground on oil, Asia mostly lower
European equities rallied broadly, with the markets digesting some upbeat data in the region and today's monetary policy testimony from U.S. Fed Chief Yellen, which appeared to ease rate hike concerns. Oil & gas issues were higher on the heels of some bullish oil inventory data. The markets seemed to look past yesterday's flare-up in U.S. political uncertainty following emails released from President Donald Trump's son. The euro was lower and the British pound gained ground on the U.S. dollar, while bond yields in the region were lower.
Stocks in Asia finished mostly lower amid some caution ahead of today's monetary policy testimony in the U.S., while yesterday's flare-up in political uncertainty following emails released by President Donald Trump's son may have hampered conviction. Japanese equities declined as the yen gained ground, while weakness in financials and healthcare issues overshadowed a continued rebound in basic materials to weigh on Australian securities. Mainland Chinese shares decreased and stocks in Hong Kong gained ground. South Korean equities traded lower and Indian listings continued a record run ahead of data on inflation and manufacturing output. After the closing bell, India's consumer price inflation came in a bit cooler than expected and industrial production rose at a smaller pace than projected.
The international economic docket for today will be light, offering consumer inflation expectations from Australia and CPI from Germany and France.