Nasdaq at 14-year high

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Socks jumped 1 percent on Monday, with the S&P 500 climbing to an all-time high as optimism over merger activity helped Wall Street erase this year’s early weakness.

Gains were broad, with nine of the 10 S&P 500 sectors up on the day and a number of bellwethers, including Caterpillar Inc (CAT.N) and Merck & Co (MRK.N), hitting 52-week highs.

With the day’s gains, the S&P 500 turned positive for the year while the Nasdaq hit a 14-year high. More than two-thirds of companies traded on the New York Stock Exchange rose on the day, while 63 percent of Nasdaq-listed companies gained.

“People are recognizing that while some economic data has been muted, there is still a lot of value in the market based on corporate cash positions and multiples. From a perspective of overall fundamentals, things look pretty good, especially relative to other asset classes,” said Matthew Keator, partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. More here.

Banks Sell Most U.S. Notes

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Banks in the U.S. sold the most notes tied to constant-maturity swap rates last month in at least four years as investors bet that Federal Reserve policy will help maintain an upward-sloping yield curve.

Sales climbed to $191.7 million, or about half of all securities tied to interest rates in January, according to data compiled by Bloomberg. Ninety-two percent of the notes are known as “steepeners” because they benefit when the difference widens between long- and short-term swap rates.

The products are becoming more popular as the Fed keeps its short-term benchmark rate no higher than 0.25 percent while trimming purchases of longer-maturity securities. Investors buying the steepener notes are betting that a slow U.S. recovery will restrain the Fed from changing its rates policy for the next two years, said Bill Bernhardt Jr., president of First Dimension Life Insurance Co. More here.

Yellen Echoes Bernanke In First Congressional Testimony As Fed Chair

Janet Yellen

In her first testimony before Congress as Federal Reserve Chair Janet Yellen pledged to continue on the path set by her predecessor Ben Bernanke. “His leadership helped make our economy and financial system stronger and ensured that the Federal Reserve is transparent and accountable,” said Yellen in a remarks delivered before the House Committee of Financial Services Tuesday morning.

Speaking about the economic recovery, monetary policy and the financial systems Yellen expressed optimism about developments in recent months, but also made it clear work must be done to meet the Federal Open Market Committee’s objectives for the economy.

In a note following the release of Yellen’s prepared remarks, Jim O’Sullivan chief U.S. economist at High Frequency Economics, said, “Her statement was effectively an expanded version of the last FOMC statement, with no new signals on tapering, thresholds, forward guidance or recent economic data.” Introducing Yellen, Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, noted that Yellen offered to stay on the Hill all day. The offer, he said, boded well for her pledge to be “transparent and accountable,” but the committee needed to decline.More here.

Fed’s Plosser concerned central bank will resist higher rates too long

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Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said on Tuesday history is not on the side of the central bank when it comes to raising interest rates in a timely manner and the risk is financial markets will force its hand.

Plosser, speaking at the University of Delaware, said it is always easier to lower interest rates to spur economic activity than to raise interest rates, a mechanism to slow the pace of inflation.

“I am worried that we are going to be too late and that we are going to resist and resist raising rates and we are going to wait until it is so obvious we need to raise rates that we are going to be behind,” Plosser told reporters.

“Financial markets aren’t always patient and they could decide it is time to raise rates and long-term rates start rising and interest rates start going up and we are going to be forced to chase them up. Then we will be behind. I don’t want to chase the market, but we may end up having to do that,” he said. More here.

Treasuries Are Worst Performing Bonds

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Treasuries are the world’s worst-performing bonds this week, starting February with a reversal of January’s rally before a report tomorrow economists said will show jobs growth rebounded from a slowdown.

U.S. government securities due in 10 years and more fell 0.7 percent since Jan. 31, the biggest loss of 144 indexes of bonds around the world compiled Bloomberg and the European Federation of Financial Analysts Societies. Federal Reserve Bank of Philadelphia President Charles Plosser, who votes on monetary policy this year, said yesterday he expects the U.S. economy to grow enough to warrant a reduction in the central bank’s bond purchases.

“The Fed is on track to continue tapering as we progress through this year,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “There are expectations we’ll see an improvement in the payrolls number on Friday, and our view is that U.S. yields will generally move higher.” More here.

US STOCKS-Wall St bounces back

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NEW YORK, Feb 4 (Reuters) – U.S. stocks rebounded on Tuesday, buoyed by encouraging earnings, as the market attempted to steady in the wake of its largest selloff in months a day earlier.

The Standard & Poor’s 500 fell nearly 3 percent over the previous two sessions, including Monday’s slide, which was the worst drop for the benchmark index since June. The selloffs were triggered by weaker-than-expected U.S. data, as well as concerns over growth in China and the outlook for some emerging economies.

The drop proved enticing for investors looking for bargains as emerging market concerns retreated and their currencies moved off recent lows. The S&P’s consumer discretionary and financial stocks were among the best-performing sector indexes.

Investors have focused on macroeconomic data in the wake of a rout in emerging market currencies, which triggered rate hikes by some central banks. That pressured stocks and bonds and forced investors to favor assets perceived as relatively safe, like the yen, U.S. Treasuries and German government debt.

“Everything that was sort of getting beaten up is bouncing. It will be interesting to see what happens if the currencies trade back down and what our market thinks of that,” said Stephen Massocca, managing director at Wedbush Equity Management LLC in San Francisco.More here.

Janet Yellen Sworn In To Lead Federal Reserve

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Janet Yellen was sworn in as the first women to lead the Federal Reserve board of governors Monday morning, taking the post of chairwoman at a critical moment as the central bank debates how quickly to taper its expansionary monetary policies.

Yellen took the chairwomanship early Monday in an oath administered by Governor Daniel K. Tarullo, the Fed said in a statement, nearly four months after President Obama announced his intention to nominate Yellen for the post, and a month after the Senate confirmed her on Jan. 6. She takes the post from Ben Bernanke.

The former Berkeley professor is widely seen as a more compassionate Federal Reserve chair than the technocratic leaders the Fed has traditionally been led by, especially in light of her long academic record of focusing on the human impact of unemployment.

Yell described her background in an exclusive interview with TIME in January. ”My father was a family doctor, and both he and my mother lived through the Depression,”she said. “I came to understand the effect that unemployment could have on people in human terms.”

The Federal Reserve has arrived at a crossroads in its post-recession monetary policy, and Yellen’s biggest challenge will be to smoothly wind down the Fed’s program of purchasing billions of dollars of Treasury bonds and mortgage-backed securities. The policy, intended to stimulate the economy, has resulted in the purchase of trillions of dollars in assets since the start of the recession.

The Fed has also kept its short-term interest rate near zero since late 2008 in an effort to spur economic growth, and Yellen will lead the Fed in deciding when to raise rates. More here.

BofA’s $8.5 Billion Mortgage Bond Pact Approved by Judge

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Bank of America Corp.’s $8.5 billion settlement with mortgage-bond investors, including BlackRock Inc. (BLK) and Pacific Investment Management Co., was largely approved by a New York state judge.

Bank of New York Mellon Corp., the trustee for more than 500 residential mortgage-securitization trusts, filed a petition in June 2011 seeking approval of the settlement, which aimed to resolve claims that the loans backing the bonds didn’t meet their promised quality. Investors will still be able to pursue loan-modification claims under today’s decision, an obstacle that a bank spokesman said can be addressed.

“This clears a big hurdle for Bank of America,” Paul Miller, an analyst at FBR Capital Markets Corp., said in a phone interview. “It would’ve been a huge headache if it fell apart.”

For Bank of America, the settlement is part of Chief Executive Officer Brian Moynihan’s efforts to resolve liabilities tied to faulty mortgages that have cost the company at least $50 billion since the financial crisis, most inherited from its 2008 purchase of Countrywide Financial Corp.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated. More here.

Nothing will deter Fed from tapering

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Federal Reserve officials will likely agree on another $10 billion taper to its bond-purchase program after a two-day meeting that ends Wednesday. That’s the same pace as the first reduction announced in December and it will bring the monthly purchases down to $65 billion per month, consisting of $35 billion of Treasurys and $30 billion or mortgage backed securities.

“I think the Fed is desperate to extract itself from quantitative easing, and it will continue to scale back the program and end it this year,” said Bernard Baumohl, chief global economist of the Economic Outlook Group, in an interview.

Fed chairman Ben Bernanke indicated the Fed wanted to taper at a similar pace to the December move and “now they’ll start off on that road,” agreed Nigel Gault, co-chief economist at The Parthenon Group in Boston.

The tumble in the stock market —down six of the last seven sessions through mid-morning trade— will not deter the Fed from tapering again, analysts said.

Also read:5 of Bernanke’s most memorable moments | A look back at the Bernanke era

Indeed, many experts said it will take something fairly major to blow the Fed off course, either a quicker taper or a pause.

Depending on the circumstances, any shift could be difficult to communicate to markets, Gault said.

One exception to this stance was Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management, who thinks the Fed will probably accelerate the pace of tapering in the summer.

Instead of finishing tapering at the end of 2014, “we expect the Fed to be done with bond purchases by September,” Vail said.

“They want to get out of this business,” she said

The minutes of the Fed’s December policy committee meeting revealed that Fed officials believe the benefits from bond purchases erode over time. Read more about December minutes.

There is also concern about asset bubbles and the $4 trillion size of the central bank’s balance sheet.More here.

Home Prices in 20 U.S. Cities Rise

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Home prices in 20 U.S. cities rose in November from a year ago by the most in almost eight years, providing a boost to household wealth.

The S&P/Case-Shiller index of property prices in 20 cities climbed 13.7 percent from November 2012, the biggest 12-month gain since February 2006, after a 13.6 percent increase in the year ended in October, a report from the group showed today in New York. The median projection of 31 economists surveyed by Bloomberg called for a 13.8 percent advance.

A limited number of available properties is helping to sustain home price appreciation even as higher mortgage rates cool demand and leave purchases out of reach for some Americans. Further strides in the housing market this year would be made easier by a pickup in job and income growth. More here.

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