Wall Street stocks closed at their highest levels in a week on Tuesday, as investors cheered the cautious rate hike tone of Fed Chair Janet Yellen.
The broad-based S&P 500 ended up 0.9% at 2,055 - its highest level since March 22 - while the S&P Midcap 400 stormed 1.8% higher to 1,443.
The S&P Smallcap 600 closed 2.7% higher at 684, while the wider small-cap Russell 2000 ended 1% up at 1,091.
Although oil prices were on a losing streak all session, they too pared downside and the US benchmark West Texas Intermediate was down 2.6% at $38.35.
But the focus for bourses was Yellen's speech to the Economic Club of New York. Yellen gave enough away to suggest economic growth demanded higher rates, but made it clear that various factors at home and abroad would determine the pace.
Midsession
US stocks swung into positive territory at midsession on Tuesday after US Federal Reserve Chair Janet Yellen said it was appropriate for the central bank to proceed "cautiously" in raising interest rates.
The broad-based S&P 500 was up 0.5% at 2,047, while the S&P Midcap 400 was up 0.6% at 1,427 and the S&P Smallcap 600 was 1% higher at 673. The wider small-cap Russell 2000 was up 0.88% at 1,089.
Equities have long had a love-hate relationship with rate policy, but overall markets want to see gradual and well-defined increases in the price of credit that are warranted by improving economic growth conditions.
Global developments and risks have led US central bankers to project a slower path of rate hikes than had been expected in December, Yellen said.
Yellen, speaking at the Economic Club of New York, said global risks remain, including uncertainty over China and the path of oil prices.
While the central bank has said a rate decision will depend on economic data, several Fed bankers have voiced support for more than one increase this year.
Meanwhile, oil prices remained below $40 a barrel. The US benchmark West Texas Intermediate was down 3% at $38.20, as much in anticipation of more record highs in weekly US oil output figures due out later in this holiday-shortened week.
On Monday, data from the InterContinental Exchange indicated the highest level of ‘net long’ speculation in the oil market on record.
As oil prices tip back below US$40 per barrel, the market may wonder what could happen if sentiment changes and sees some of those trading positions unwound.
Stock-specific, the higher S&P400 was driven by Cleco Power (NYSE:CNL) which rose 13.1% to $55.19 after Louisiana regulators approved the company's sale. A 4-1 vote late Monday by the Public Service Commission allows the sale to a group of investors. The PSC had rejected the $4.9bln sale of the Pineville-based energy group in February.
Pre-open
US markets were relatively flat in the pre-market trading as investors reserved judgement until after today’s key speech by Federal Reserve chair Janet Yellen.
S&P 500 futures edged up by 2 points to 2,030.75, while Dow Jones Industrial Average futures inched higher by 5 points. The tech-heavy Nasdaq 100 futures gained 7 points, or 0.2%, to 4,397.
It is seen as important following “recent surprise moves into hawkish territory by a number of Fed officials,” according to Accendo Market’s Michael van Dulken.
Her tone on the state of the US economy, and any clues on the timing of the next Fed interest rate hike, will likely have an impact on the markets.
In company news, retail giant Wal-Mart Stores Inc (NYSE:WMT) has won a legal battle over a proposed new tax in Puerto Rico.
A federal judge threw out the tax, which would have taken more than 100% of the company’s profits from its stores on the island, and called it unlawful.
Conversely, SunEdison Inc (NYSE:SUNE) is being investigated by the U.S. Securities and Exchange Commission (SEC) it emerged on Tuesday.
The SEC is looking into whether the solar company inflated its liquidity last year when it reported that it had more than $1bn in cash, according to reports.
Shares, which have fallen 75% since the start of the year, were 38% lower in pre-market trading.
In other news, pharma company Keryx Biopharmaceuticals (NASDAQ:KERX) could be a big mover after the bell as it said its drug to treat iron deficiency anemia in chronic kidney disease patients has passed late stage clinical trial milestones.
It means the treatment could be fast tracked for an expanded approval of the treatment. Shares were more than 20% higher in pre-market trading.