US markets closed higher after Yellen's speech

The US market closed higher on Tuesday, with the S&P 500 and the Dow Industrial rising to their highest close of 2016 after Federal Reserve Chairwoman Janet Yellen emphasized a cautious approach to normalizing monetary policy in light of fears about the domestic and international economy. Yellen, spoke optimistically about the US economy, particularly the strong gains in the job market and resilient consumer spending. But when she turned to the global economy, it got gloomy. Yellen added that it was too early to tell if the recent pickup in inflation would last and that the Fed needed to proceed cautiously on raising benchmark interest rates given global risks. Yellen defended the US central bank’s decision to move cautiously on interest-rates hikes given the risky outlook, as she also revealed the tool kit in case the economy stumbles. The Fed Chairwoman enlightened that the overall fallout from market turmoil in the first seven weeks of 2016 will most likely be limited, but added that this was still uncertain. In total, she mentioned the work ‘risk’ 19 times in her speech. The Fed chairwoman repeated her doubts that the pickup in core inflation since the beginning of the year was the start of an upward trend, but warned against reading too much into an uptick in inflation. However, in an unexpected twist to the speech, Yellen pushed back on the conventional wisdom that the US central bank would be virtually powerless to respond to a recession given that interest rates are so close to zero.

On the economy front, consumer confidence jumped in March, reflecting more optimism among Americans as stock markets rebounded from steep losses early in the year and worries about a recession faded. The index of consumer confidence climbed to 96.2 last month. The index reading for February was also revised higher to 94.0 from 92.2. The present situation index, a measure of current conditions, slipped to 113.5 from 115.0. But the future expectations index rose to 84.7 from 79.9. House prices rose 5.7% compared to a year ago in January, the S&P/Case-Shiller 20-city index showed. Eleven cities had bigger yearly gains in the three month period ending in January than the period ending in December. The biggest jumps were in Portland, Seattle, and San Francisco, all of which rose by double digits. Prices nationally are at their winter 2007 levels, and remain about 12% lower than their summer 2006 peaks. But prices have surpassed those earlier highs in several metros.

The Dow Jones Industrial Average rose 97.72 points or 0.56 percent to 17,633.11, Nasdaq gained 79.83 points or 1.67 percent to 4,846.62 while, S&P 500 was up 17.96 points or 0.88 percent to 2,055.01.

The Indian ADRs closed mostly in green; Tata Motors was up by 1.36%, HDFC Bank was up 0.75% and ICICI Bank was up by 0.19%. On the other hand, Dr. Reddy’s Lab was down 0.42% and Infosys was down by 0.06%.