Essay on US Stocks Rise To Record Levels

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U.S. Stocks Rise to Fresh Records
Fed chief signals rate increases are drawing nearer as economy improves

By
DAN STRUMPF and SAUMYA VAISHAMPAYAN
Updated Feb. 24, 2015 4:35 p.m. ET
16 COMMENTS
U.S. stocks rose to fresh records Tuesday after Federal Reserve Chairwoman Janet Yellen signaled that future interest-rate increases will be clearly marked and noted the recent improvement in the U.S. economy.
The Dow Jones Industrial Average advanced 92.35 points, or 0.5%, to 18209.19, its second record close of 2015. The S&P 500 added 5.82 points, or 0.3%, to 2115.48, also a record finish.
The Nasdaq Composite rose 7.15 points, or 0.1%, to 4968.12, its third-highest close ever. The rally marked its 10th straight session of gains, its longest run since July 2009. The index is less than 2% from topping its March 2000 record close of 5048.62.
Investors spent the session poring over Ms. Yellen’s speech for clues about when the Fed will begin to raise short-term interest rates, which have been held near zero since December 2008. In prepared remarks to the Senate Banking Committee, Ms. Yellen said if the economy keeps improving as the Fed anticipates, the central bank “will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.”
The central bank has said since December that it would be patient before increasing rates. On Tuesday, Ms. Yellen emphasized that the Fed will change its guidance before raising rates, but said potential changes—like dropping the word “patient”—won’t mean rate increases will follow on a set path.
”She came out and was essentially as dovish as you can be,” said David Seaburg, head of sales trading at Cowen and Co. “The market views it as a positive sign.”
The nearly six-year bull run in stocks has been driven in part by the Fed’s easy monetary policy, which helped boost the appeal of stocks versus competing assets, such as bonds. The Fed ended its bond-buying program last year and is now considering an increase in rates.
In its monetary policy report, released Tuesday, the central bank said stock-market valuations are “somewhat higher than their historical average levels.”
“The Fed is no longer supportive in trying to encourage stock market valuations to go up,” said Wayne Lin, a portfolio manager at QS Investors. “The bottom line for the equity markets is they just have to earn their way to returns now,” he added.
In the bigger picture, the Fed’s motivation for eventually raising rates comes from its view that the economy has recovered sufficiently.
“We still think the U.S. will
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