Stocks Notch Gains In Midst of Yellen Speech

Charles Schwab: On the Market

Posted: 6/6/2016 4:15 PM ET

Stocks Notch Gains In Midst of Yellen Speech

U.S. equities gained ground amid a speech from Federal Reserve Chairwoman Janet Yellen, where she omitted any time frame for the next rate hike in the wake of Friday's disappointing labor report. Meanwhile, equity news was sparse, and the economic calendar dormant. Treasuries were lower, crude oil prices were mixed, gold traded higher, and the U.S. dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) rose 113 points (0.6%) to 17,920, the S&P 500 Index added 10 points (0.5%) to 2,109, and the Nasdaq Composite was 26 points (0.5%) higher at 4,969. In moderate volume, 866 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.07 to $49.69 per barrel, but wholesale gasoline was down $0.02 at $1.59 per gallon, while the Bloomberg gold spot price inched $0.89 higher to $1,245.09 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.96.

Devon Energy Corp. (DVN $38) announced that it has entered into definitive agreements with undisclosed parties to monetize near $1.0 billion of non-core upstream—exploration and production—assets in east Texas, the Anadarko Basin and an overriding royalty in the northern Midland Basin. Shares were higher.

AbbVie Inc. (ABBV $63) saw some pressure after the pharmaceutical company presented disappointing data on a trial of its experimental lung cancer drug over the weekend at the annual meeting of the American Society for Clinical Oncology.

Yellen talks after Friday's decisively disappointing labor report

With nothing on today's economic calendar, the market focused its attention to today's speech by Federal Reserve Chairwoman Janet Yellen in Philadelphia. Yellen spoke following Friday's much softer-than-expected May nonfarm payroll report, and she made no mention of a time frame for the next rate increase. However, she noted that she continues to think the fed funds rate will probably need to rise gradually over time and in light of the recent employment report, "my colleagues and I will be wrestling with" new questions about the economic outlook that have been raised. Yellen added that her overall assessment is that the current stance of monetary policy is generally appropriate, in that it is providing support to the economy and will help return inflation to 2.0%.

As noted in the Schwab Market Perspective: Stocks Stuck in the Muck, we continue to view one or two hikes this year as the most likely scenario, but have our eye on both rising wages and the bump up in inflation measures such as the Consumer Price Index (CPI). If inflation were to surprise on the upside, the Fed could be forced to be more aggressive, leading to more consternation for investors. But for now, we continue to believe the Fed will be slow and methodical in their quest to return rates to a more “normal” level, which could help to support equities in the second half of the year. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Treasuries were lower, as the yield on the 2-year note rose 3 basis points (bps) to 0.80%, while the yields on the 10-year note and the 30-year bond gained 2 bps to 1.72% and 2.53%, respectively. Bond yields fell on Friday in the wake of the disappointing employment data. For more on the potential impact of further rate hikes, see our article, What If the Fed Raises Interest Rates?, at www.schwab.com/insights.

The week's very light economic calendar will begin tomorrow with final 1Q nonfarm productivity and unit labor costs, expected to show productivity was favorably revised to a decline of 0.6% from the prior reading of a 1.0% decline, while labor costs are forecasted to tick slightly lower to 4.0% from the 4.1% previously reported. As well, in the final hour of trading, consumer credit will be released, expected to show consumer borrowing for the month of April shrunk to a level of $18 billion from the surprising $29.7 billion level in March.

Europe tick higher ahead of Fed speech, Asia mixed

European equity markets traded mostly higher, with basic materials and oil & gas stocks leading the way amid the recent rally in metals prices and as crude oil prices gained solid ground. However, conviction may have been stymied ahead of today's speech from Federal Reserve Chairwoman Janet Yellen and on the heels of Friday's much softer-than-expected U.S. labor report. The euro was lower and the British pound fell versus the U.S. dollar, while bond yields in the region gained ground. The pound saw pressure as another poll exacerbated flared-up concerns about the possibility that the U.K. could vote to leave the European Union (EU), known as a Brexit. For analysis on the issue read our article, Brexit: Will the UK Leave the EU? at www.schwab.com/insights and Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Brexit: 5 Things Investors Need to Know at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop. In economic news, German factory orders fell more than expected in April, while eurozone investor confidence improved more than expected for June.

Stocks in Asia finished mixed on the heels of Friday's severe miss in May U.S. nonfarm payroll growth, which sent the dollar lower and boosted the yen, while traders appeared cautious ahead of U.S. Fed Chairwoman Janet Yellen's speech today and some Chinese economic data later this week. Japanese equities declined in the wake of the rally in the yen, while mainland Chinese stocks and those traded in Hong Kong diverged ahead of a plethora of key economic reports this week, including the trade balance and inflation readings for May. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses China data in his article, Trust but Verify: Five Independent Indicators of China's Economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, offers 5 Reasons China Won't Crash the Global Economy in 2016. Read more at www.schwab.com/oninternational. Meanwhile, Australia's market rose modestly, led by a jump in basic materials stocks as metals prices have rallied, while Indian listings declined amid the Fed rate hike uncertainty following Friday's U.S. employment report. South Korean markets were closed for a holiday.

Tomorrow's international economic calendar will offer: industrial production from Germany and Spain, trade data from France, and GDP from the Eurozone. In central bank action, the monetary policy decisions from the Reserve Bank of India and the Reserve Bank of Australia are on tap.