MarketView for February 11

Summary

Stocks ended a quiet session with slight moves on Monday as the Street saw little in the way of stimulus to keep pushing shares higher following the recent six-week advance. Nonetheless, the longer-term trend was still viewed as positive.

Both the S&P 500 and Dow Jones Industrial Average are near their multi-year highs. The S&P is less than 4 percent from its all-time intraday high of 1,576.09, hit in October 2007.

Meanwhile, the Street was modestly lower throughout the session but regained some ground in the final hour of trading as Google rebounded off earlier losses. Google fell 0.4 percent to $782.42, recovering from earlier declines of 1 percent after the company said in a filing former chief executive Eric Schmidt is selling roughly 42 percent of his stake in the company.

Apple rose up 1 percent to $479.93 after the New York Times reported the iPhone maker was experimenting with the design of a device similar to a wristwatch.

The Federal Reserve's Vice Chair Janet Yellen, seen as a potential successor to Fed Chairman Ben Bernanke next year, said the Fed is still aggressively stimulating an anemic U.S. economic recovery that has failed to bring rapid progress on employment.

Equities have been strong performers lately and many investors have used any declines in the market as opportunities to buy.

President Barack Obama will describe his plan for spurring the economy in his State of the Union address on Tuesday. He is expected to offer proposals for investment in infrastructure, manufacturing, clean energy and education.

Opposition has grown to the $24.4 billion buyout of Dell, the No. 3 personal computer maker, as three of the largest investors joined Southeastern Asset Management on Friday in raising objections. Dell said in a regulatory filing it had considered many strategic options before opting to go private in a buyout led by Chief Executive Michael Dell. Dell shares hovered near $13.65, the buyout offer price.

Regeneron Pharmaceuticals rose 2.7 percent at $170.35 after it said longtime drug development partner Sanofi plans to boost its stake.

Moody's was one of the strongest percentage gainers on the S&P 500, rising 4.9 percent to $45.49. Last week the stock fell 22 percent after the Government launched a civil lawsuit against the company. The sell-off marked the stock's worst week since October 2008.

Volume was light, with about 4.812 billion shares changing hands on the three major equity exchanges, well below the daily average so far this year of about 6.48 billion shares.

Fed is Working It Says Yellen

The Federal Reserve's aggressive easing of monetary policy is warranted given the still-battered state of the U.S. labor market, Fed Vice Chairwoman Janet Yellen said on Monday. In an address to the AFL-CIO, Yellen, a potential successor to Fed Chairman Ben Bernanke next year, bemoaned the unusually weak nature of the economic expansion.

"The gulf between maximum employment and the very difficult conditions workers face today helps explain the urgency behind the Federal Reserve's ongoing efforts to strengthen the recovery," Yellen said. "We have taken, and are continuing to take, forceful action to increase the pace of economic growth and job creation."

The U.S. economy contracted slightly in the fourth quarter of 2012 and, while that decline is seen as temporary, continues to grow at or below 2 percent, far below the rate economists say is needed to bring down the 7.9 percent unemployment rate.

Yellen pointed to our erratic budget policy as one source of weakness in the recovery. "I expect that discretionary fiscal policy will continue to be a headwind for the recovery for some time, instead of the tailwind it has been in the past," she said.

In response to the deep financial crisis and recession of 2007-09, the Fed lowered interest rates effectively to zero and bought over $2 trillion in mortgage and Treasury securities in an effort to keep down long-term interest rates. It began a new, open-ended round of $85 billion monthly bond purchases in September.

Austerity policies in the United States and Europe that sharply cut spending to reduce budget deficits could be self-defeating if they derail economic growth, Yellen said.

"Both for the United States and for Europe ... fiscal austerity does raise unemployment, weaken the economy and ... in addition undermines the goals for which it is designed to achieve," Yellen said.

Yellen argued that the primary cause of high unemployment is a shortage of demand due to the ebb and flow of the business cycle, not structural factors. That suggests monetary policy can be helpful to offset the labor market's troubles.

Long-term unemployment is a serious problem not only for those affected, but also for the economy as a whole since it could hurt the nation's growth potential, Yellen said.

Some analysts worry the Fed's stimulus policies will spark future inflation, but the central bank maintains it has all the tools it needs to remove liquidity from the financial system when the time comes.

Policymakers do not think that is any time soon. They have vowed to keep purchasing assets as long as the employment outlook fails to make substantial improvement and to keep rates near zero until the jobless rate falls to 6.5 percent, as long as inflation remains under control.

Yellen said that, when the time comes to tighten monetary conditions, the Fed has the necessary tools, particularly the ability to pay interest on bank reserves to remove liquidity from the financial system.

Asked about the role of a large U.S. trade deficit at a time when some analysts have voiced fears of competitive exchange rate devaluation or "currency wars," Yellen sounded an optimistic note.

"For quite some period of time now, the U.S. dollar has been depreciating very gradually in real terms and I think it has made a very substantial difference to the U.S. current account deficit that has come down a long way and is no longer on what I would to refer to as an unsustainable course," Yellen said. "So I think that we have made progress in that regard."