A late wave of buying on Friday helped nudge US stock indices slightly higher after a day of mostly listless trading.
Banking and healthcare stocks climbed the most, as investors priced in an increasing likelihood that interest rates will rise in the coming months.
US Federal Reserve Chair Janet Yellen helped stoke those expectations in a speech, in which she said that an improving job market and rising inflation would likely prompt the central bank to increase borrowing costs.
“The real takeaway here is if the Fed is willing to start moving, they see the economy as not only doing better, but likely to do better going forward,” Commonwealth Financial Network chief investment officer Brad McMillan said. “The Fed is notorious for waiting until the evidence of growth is absolutely undeniable.”
The Dow Jones Industrial Average on Friday rose 2.74 points, or 0.01 percent, to 21,005.71, a 0.88 percent increase from its close of 20,821.76 on Feb. 24.
The S&P 500 on Friday gained 1.20 points, or 0.1 percent, to 2,383.12. It had closed at 2,367.34 on Feb. 24, a weekly increase of 0.65 percent.
The NASDAQ Composite on Friday added 9.53 points, or 0.2 percent, to close at 5,870.75. That compared with a close of 5,845.31 on Feb. 24 for a week-on-week gain of 0.43 percent. Small company stocks fell.
The Russell 2000 Index on Friday slipped 1.54 points, or 0.1 percent, to 1,394.13, falling 0.03 percent week-on-week from a close of 1,394.52 on Feb. 24.
Speaking in Chicago on the Fed’s economic outlook, Yellen on Friday said the Fed will likely resume raising interest rates later this month to reflect a strengthening job market and inflation edging toward the central bank’s 2 percent target rate.
The central bank expects steady economic improvement to justify additional rate increases, Yellen added.
While not specifying how many rate hikes could occur this year, Yellen said that Fed officials in December last year had estimated that there would be three this year.
Investors’ expectations of a rate hike this month had been building in recent days, as remarks by other Fed officials signaled the central bank is ready to resume raising rates as soon as its next two-day meeting of policymakers on March 14-15.
That was one reason the major indices moved little before and after Yellen’s speech.
Still, the increased likelihood of higher interest rates gave several stocks a modest lift, including banks, which stand to make healthier profits from lending as rates rise.
Bank of the Ozarks added US$1.09, or 2 percent, to US$56.24, while Signature Bank rose US$2.79, or 1.7 percent, to US$162.24.
Not faring as well were real estate, utilities and telephone company stocks, which tend to lose favor among yield-seeking investors when interest rates rise.
“If yields are going up, you don’t need to buy those stocks to get your yield, you just buy 10-year [US] Treasury notes,” LPL Financial chief economic strategist John Canally said.
Bond prices were little changed on Friday after pulling back from an early climb. The 10-year Treasury yield held steady at 2.48 percent.
Wall Street’s slight gains on Friday left the stock market hovering near its latest record highs set on Wednesday.
Stronger-than-expected earnings from companies, continued improvement in the US economy and expectations for business-friendly policies from Washington have helped propel the market to new highs this year.
Should investors be nervous about a pullback?
“In the very short term there is some risk of a pullback,” Schwab Center for Financial Research vice president of trading and derivatives Randy Frederick said.
“I wouldn’t say it’s likely to approach anything close to a correction, or a 10 percent pullback. Long term, we continue to think we’re solidly in a bull market,” he added.
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