Early Losses Fade, Stocks Finish Higher…..

After beginning the day lower, U.S. equities finished to the upside, as investors appeared to take testimony from Fed Chair Jerome Powell in his confirmation hearing in stride. Powell suggested a soft landing as the Central Bank moves to remove its emergency stimulus measures and travel down the path to tighter monetary policy. Much of the downside volatility as of late seems to have come courtesy of a jump in bond yields amid heightened inflation pressures, increasing investor expectations that the Fed and other global central banks may quickly accelerate the tightening of their monetary policies. In economic news, small business optimism improved more than expected but inflation and labor shortages remained sore spots. On the corporate front, CVS Health, Illumina and Shake Shack issued upbeat guidance. Treasuries were mostly higher, with yields on the longer end seeing pressure and the U.S. dollar was lower, while crude oil prices and gold traded solidly higher. Europe finished with widespread gains, while markets in Asia were mixed as Japan returned to action from a holiday break.

The Dow Jones Industrial Average rose 183 points (0.5%) to 36,252, the S&P 500 Index increased 43 points (0.9%) to 4,713, and the Nasdaq Composite was 211 points (1.4%) higher at 15,153. In heavy volume, 4.0 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil jumped $2.99 to $81.22 per barrel. Elsewhere, the gold spot price advanced $23.40 to $1,822.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.4% to 95.62.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for December ticked slightly higher to 98.9 from November’s 98.4 level, versus the Bloomberg estimate of a rise to 98.7. The report pointed out labor shortages and inventory shortages continue to impact business operations. The NFIB said, “Small businesses unfortunately saw a disappointing December jobs report, with staffing issues continuing to impact their ability to be fully productive, while inflation is at the highest level since the 1980s and is having an overwhelming impact on owners’ ability to manage their businesses.”

Treasuries were mostly higher, as the yield on the 2-year note was flat at 0.90%, while the yields on the 10-year note and the 30-year bond were 3 basis points lower at 1.75% and 2.08%, respectively.

The Treasury yield curve has steepened noticeably to begin the year as the markets grapple with the prospect of Fed tightening and the rapid spread of the omicron variant. The steepening was amplified by last week’s hawkish minutes from the Fed’s December meeting, which suggested along with accelerated tapering and multiple rate hikes this year, it may begin to reduce its balance sheet sooner than expected. The markets also paid close attention to today’s confirmation hearings for a second term for Fed Chair Jerome Powell, looking to see if he provides any guidance on the timing of the first rate hike and how many increases may be in store. In his testimony, Powell suggested a soft landing as the Central Bank moves to remove its emergency stimulus measures and travel down the path to tighter monetary policy, adding that the U.S. economy is healthy enough to move in that direction.

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