MarketView for November 13

Summary

The Dow Jones Industrial Average and the S&P 500 indexes once again ended the day at record highs as strong results from Macy's lifted consumer discretionary shares and investors bought stocks in anticipation of remarks by Janet Yellen, who is likely to become the first woman to lead the Federal Reserve.

Stock index futures rose to session highs after the bell following the release of Yellen's introductory remarks, ahead of her confirmation hearing on Thursday. Yellen, who is the Fed's vice chair, will appear before the Senate Banking Committee.

In the prepared remarks, Yellen said the U.S. central bank has "more work to do" to help an economy and a labor market that are still underperforming, suggesting to some analysts that any scaling back of the Fed's stimulus program might not be right around the corner. Yellen has been a strong supporter of the Fed's bond-buying program.

Shares of Macy's ended the day up 9.4 percent to close at $50.68, a record closing high, after the retailer said promotions had increased sales and business was improving ahead of the holiday season. The result was a sudden spurt of increased demand for consumer discretionary shares. During the session, Macy's stock hit a 52-week high at $50.95. Macy's was among the first of several retailers expected to report earnings in the coming days.

Macy's forward price-to-earnings ratio, at 11.4, is below that of the S&P 500, which is at 15. However, consumer discretionary shares, which have led S&P 500 sector gains this year, are considered among the priciest in the index. The sector has a P/E ratio of 17.8, according to Thomson Reuters StarMine data. During the regular session, Macy's was the S&P 500's biggest percentage gainer.

Among some of the other retail stocks, Wal-Mart edged up 0.2 percent to $78.90 a day ahead of its quarterly earnings. Home Depot, which is set to report results next week, was up 1.9 percent to $77.60 and bolstered the Dow industrials.

Cisco gained 1.12 percent to close at about $24 ahead of the release of the network equipment maker's earnings. However, after the bell, the shares fell 10.6 percent because the company warned that its revenue would drop between 8 percent and 9 percent in its second fiscal quarter.

Nonetheless, the S&P 500 found support from technology stocks, with shares of NetApp rising 2.7 percent to $41.29 ahead of the company's results after the close. However, like Cisco NetApp's shares fell 0.2 percent to $41.20 following the release of its results.

In addition to Yellen's testimony on Thursday, investors are awaiting a speech from Bernanke. The Fed chairman is scheduled to speak at 7 p.m. on Wednesday although the topic is not necessarily on monetary policy.

About 6.034 billion shares changed hands on the three major equity exchanges, a number that was slightly below the five-day average closing volume of about 6.34 billion shares, according to BATS exchange data.

More to Do Says Yellen

Janet Yellen, President Barack Obama's nominee to lead the Federal Reserve, thinks the U.S. central bank has "more work to do" to help an economy and a labor market that are still underperforming.

"I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy," Yellen, the Fed's vice chair, said in remarks prepared for delivery to the Senate Banking Committee on Thursday.

Her testimony appeared aimed in part at pre-empting Republicans on the panel who are critical of the Fed's unorthodox and aggressive monetary policy. At the same time, her prepared remarks bolstered expectations in financial markets that the central bank would continue its easy money campaign to nurse the economy back to health.

If confirmed by the Senate, Yellen would be the first woman to lead the Fed. Although she can expect pointed questioning from Republicans when the hearing opens at 10 a.m., she is widely expected to win the Senate's backing.

Yellen said the economy and the labor market were performing "far short" of their potential, while price pressures remained muted.

"Inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time," she said, continuing a trend that began earlier on Wednesday on speculation that her remarks would emphasize a need to support the economy.

Financial markets have long viewed Yellen as a policy dove more concerned about the high level of unemployment than about the risk that the Fed's efforts to spur stronger growth might lead to an unwanted rise in inflation. She is widely expected to provide continuity with the ultra-easy monetary policies of Fed Chairman Ben Bernanke, whose term expires on January 31.

The committee needs to vet Yellen's nomination before sending it to the full Senate for final consideration; the timing for action is uncertain, but the outcome appears assured.

Obama's Democrats control 55 of the Senate's 100 seats, meaning the 67-year-old former economics professor need only win backing from five Republicans to reach the 60-vote threshold necessary to overcome Senate procedural hurdles.

Yellen's testimony, which represents her first public remarks on Fed policy since June 2, will be scrutinized for signs of how she feels about the costs and benefits of continued bond buying. At the same time, she is unlikely to give any clues regarding the Fed's December 17-18 meeting; although her stress on the need for stimulus reinforced expectations the central bank would not scale back its purchases until next year.

Mortgage Apps Fall

Mortgage applications fell in the past week, although a drop in the previous week was revised to a smaller fall than previously reported, the Mortgage Bankers Association indicated on Wednesday. According to the MBA its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 1.8 percent in the week ended November 8. The index fell a revised 2.8 percent in the previous week. That drop had previously been reported at 7 percent.

The MBA data showed 30-year mortgage rates edged up 12 basis points to 4.44 percent, while its refinancing index fell 2.3 percent in the latest week, and was revised to a decline of 3.9 percent in the November 1 week from a previously reported fall of 7.9 percent.

The purchase index, a leading indicator of home sales, was down 0.5 percent. That was revised to a drop of 0.7 percent in the November 1 week from a previously reported fall of 5.2 percent. The mortgage survey covers over 75 percent of retail residential mortgage applications, according to MBA.