Second straight session of strong gains for stocks on positive comments from Fed Chairman Bernanke. The Dow ($INDU) added 87.01 points on the session to close at 12,741.86. The S&P 500 ($SPX) gained 11.04 points to 1,455.30 and the NASDAQ ($COMPQ) tacked on 28.50 points to close at 2,488.38. Volume picked up on the session as well with the NYSE trading 1.52 billion shares and the Naz turning over 2.22 billion. Market breadth was positive by a 22-to-11 and 18-to-13 ratio on the Big Board and Naz respectively.
Today's session was definitely one led by economic data, most notably testimony by Fed Chairman Bernanke. The Fed chief provided testimony before the Senate Banking Committee today and there were concerns that he would be a bit hawkish following hawkish comments from other Fed leaders this past week. However, this was not the case and Mr. Bernanke eased traders' concerns about inflation, which led to buying.
Mr. Bernanke stated that the economy is showing growth and that inflation was easing. Even so, inflation is still above the Fed comfort level at 2.0 percent, but the feeling is that prior monetary policy will be enough to cool inflation down during 2007. The Chairman also was upbeat on the housing market, although he noted that it is too early to call a solid bottom. He also noted that a tight labor market could create inflationary pressures; though he felt strong productivity would likely ease these concerns.
The retail sales data for January was mixed with the headline figure flat and sales less autos up 0.3 percent, as expected. Year on year sales for both the core and less autos fell off from December, but economists still see a solid consumer. The fact is that the bulls want to see moderate growth so that inflation concerns ease. Too strong of an economy could lead to further rate hikes and this isn't a good thing for profits and stocks.
Tech stocks rallied sharply Wednesday, led by gains in the chip sector. Chip equipment maker Applied Materials (AMAT) announced that earnings double, matching expectations. However, the company provided order growth that exceeded estimates, which points to stronger than expected earnings and revenues in 2007. This news helped push AMAT shares higher by 3.85 percent to $18.89. The Philly Semiconductor Index ($SOX) added 2.14 percent to 470.49.
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