U.S. stocks rose in choppy trading, while Treasuries and the dollar were little changed as Janet Yellen indicated the
Federal Reserve won't be in a rush to tighten monetary policy amid heightened financial-market turmoil. Strength in the yen spurred intervention warnings.
The Standard & Poor's 500 Index halted a three-day slide, rebounding from a two-year low as Ms. Yellen signaled the Fed has a wary eye on volatility that could delay rate increases. Ten-year Treasury notes fluctuated before an auction. Foreign-exchange volatility climbed to the highest level in almost four years. Stocks in Europe rose for the first time in eight days, as
Deutsche Bank AG helped allay fears about the creditworthiness of the region's banks. South Africa's rand led gains in emerging-market currencies and stocks snapped a two-day decline
Ms. Yellen's testimony before Congress did little to quell market volatility, as the central banker said the Fed still expects to raise rates gradually while making it clear that continued market turmoil alter forecasts. She highlighted uncertainty over the pace of China's growth and the related rout in commodities, concerns that have roiled financial markets throughout the year and twice pushed global shares to the brink of a
bear market.
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Markets buckled earlier this week as
Deutsche Bank sparked concern European bank creditworthiness was weakening as oil's rout took crude below $28 a barrel. While central banks from Japan to Europe have signaled additional stimulus is at the ready, market volatility has intensified in recent weeks. Yellen's acknowledgment that the turmoil has clouded global growth added to anxiety.
“She's not oblivious to what's happening in the global economy and financial markets, as well as the stress of financial institutions,” James Abate, who helps oversee $1 billion as chief investment officer at Centre Funds in New York, said by phone. “She essentially is trying to stick with the premise that the economy is improving but perhaps not at the rate they anticipated and only warrants gradual rate rises.”
STOCKS
The S&P 500 climbed 0.8% at 1:58 p.m. in New York. Equities pared a gain of more than 1.5% after Ms. Yellen said market fears of a
recession are showing up in asset prices. The index tracked Ms. Yellen's comments and gyrations on the oil market, where crude swung wildly from losses to gains.
Ms. Yellen's comments reflected a concern that has hung over equity markets all year: whether the evaporation of wealth in share prices could bleed into the economy, sour consumer confidence and restrain spending. Almost $3 trillion of equity value has been erased as declines in the S&P 500 swelled to as much as 9.4% this year.
“It's really just acknowledging that we've had a 10% drop, and it is negative at the margin for growth, and if that continues it will slow down the pace of hikes,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York. “The Fed looks at equities as almost an exogenous factor that will play into their policy decisions.”
Advances in technology and health-care shares paced the advance. Akamai Technologies Inc. rose the most in two years after the company reported earnings that beat analysts' estimates. Walt Disney Co. fell as shareholders overlooked a record quarter for sales and earnings and focused on flagging profits at ESPN sports network.
The Chicago Board Options Exchange Volatility Index slid 4% to 25.48, snapping a four-day increase that saw the measure climb 23%. The gauge of price swings, which has surged 39% in 2016, is almost double its two-year average of 15.88.
The Stoxx Europe 600 Index advanced 1.9%, moving out of so-called “oversold” territory. The equity benchmark now trades at 13.8 times estimated earnings, about 21% below its April 2015 peak. Deutsche Bank surged the most since 2011, as a person familiar with the matter said the bank may buy back bonds.
BONDS
Shorter-dated Treasury notes declined while benchmark 10-year notes were little changed with yields at 1.73%, near the lowest level in a year. Two-year note yields rose three basis points to 0.72%. The difference between two- and 10-year note yields fell to the lowest on an intraday basis since January 2008.
“She has done a good job of not taking any of her options off the table,” said Guy Haselmann, head of capital-markets strategy at Bank of Nova Scotia in New York, one of the 22 primary dealers that trade with the Fed. “She's in a wait-and-see mode. At the same time she has to acknowledge what the credit markets are sort of indicating, that there is some tightening of financial conditions.”
An investor group that owns about $1.6 billion of Puerto Rico senior sales-tax bonds is proposing a plan that would allow them to be repaid in full rather than accept the discounted amount the commonwealth has offered under its restructuring proposal.
