By Anora Mahmudova and Barbara Kollmeyer, MarketWatch
GM jumps after news Peugeot owner in talks to buy Opel brand
U.S. stocks on Tuesday switched between small gains and losses as Federal Reserve Chairwoman Janet Yellen signaled to a Senate Banking Committee that the central bank could raise interest rates sooner than later, albeit gradually.
The S&P 500 index was up less than 1 point at 2,328, slightly above record levels set on Monday.
Financials jumped after Yellen's comments on interest rates, while rate-sensitive sectors such as utilities and real estate dropped.
"It appears that she is priming the market to expect two or three rate hikes, which has been reflected in higher moves in financials and bond yields," said Ryan Larson, head of equity trading at RBC Global Asset Management.
Larson also noted the Fed has some degree of hesitation regarding what the fiscal stimulus will look like.
The Dow Jones Industrial Average traded 19 points, or 0.1%, higher at 20,431, with about half of the 30 blue-chip components trading lower. Goldman Sachs Group, Inc(GS) and J.P.Morgan Chase & Co(JPM) led the gainers, up about 1%.
The Nasdaq Composite Index was up 2 points at 5,766.
Some market participants read Yellen's reference to the Fed raising rates at "upcoming meetings" as indicating that an increase of benchmark rates at the Fed's March meeting, which Wall Street has been pricing in as unlikely, is still on the table. Central-bank officials last lifted the Fed-funds rate in December to a range between 0.50% and 0.75%.
Read:'Fed Up' exposes the elite rot inside the Federal Reserve (http://www.marketwatch.com/story/fed-up-exposes-the-elite-rot-inside-the-federal-reserve-2017-02-14)
Still there are those who doubt the Fed's conviction to hike in March.
"The Fed is going to be reactive [rather] than proactive, so we don't expect the first rate hike this year until May or June," said Wouter Sturkenboom, senior investment strategist at Russell Investments.
Fed member forecasts for rates suggest that the central bank will raise rates three times in 2017, but the market isn't expecting a rate increase before the Federal Open Market Committee's June meeting, according to CME Group data (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).
"The Fed has the flexibility to raise rates once in the first half and raise two more times in the second half, if it sees the economy pick up steam because of tax policies," Sturkenboom said, adding the central bank does not have to spread them out evenly throughout the year.
See: Live blog of Yellen testimony (http://blogs.marketwatch.com/capitolreport/2017/02/14/feds-yellen-testifies-to-senate-live-blog-and-video/)
Richmond Fed President Jeffrey Lacker, who is isn't a voting member of the Federal Open Market Committee, said on Tuesday that almost all policy rules are recommending higher interest rates.
Treasury yields, which are sensitive to shifting rate-hike expectations, jumped on Yellen's comments, with the 10-year Treasury note , jumping 6.2 basis points at 2.4914%, compared with 2.434% late Monday in New York. Bond yields rise as prices fall, and investors tend to unload bonds in a rising interest-rate environment in anticipation of being able to repurchasing government bonds at higher rates in the future.
Read:As euphoria overruns Wall Street, one bank sees S&P 500 at 3,000 by 2019 (http://www.marketwatch.com/story/as-euphoria-overruns-wall-street-one-bank-sees-sp-500-at-3000-by-2019-2017-02-13)
On the data front, the National Federation of Independent Business's small-business index for January maintained its postelection surge as business owners remained optimistic (http://www.marketwatch.com/story/small-business-sentiment-keeps-up-post-election-groove-nfib-says-2017-02-14) about better economic prospects under President Donald Trump's administration. The Producer Price Index (http://www.marketwatch.com/story/ppi-shows-biggest-gain-in-wholesale-inflation-since-2012-2017-02-14)for January jumped by 0.6%, the largest rise since 2012, suggesting inflation may be heating up.
Stocks to watch:Molson Coors Brewing Co.(TAP) shares rose 1.5% after earnings results.
Results from American International Group Inc.(AIG) and Fossil Group Inc.(FOSL) are due after the close.
Shares of General Motors Co (http://www.marketwatch.com/story/small-business-sentiment-keeps-up-post-election-groove-nfib-says-2017-02-14).(GM) rallied 5% after owner of French car maker Peugeot (UG.FR), the PSA Group, said it is in talks with GM to buy its Opel brand (http://www.marketwatch.com/story/peugeot-owners-in-talks-to-buy-gms-opel-2017-02-14). Shares of Peugeot jumped 3.7% in Paris.
Shares of Mattel, Inc.(MAT) rose 0.9% after news that the toy maker will team up with Alibaba (http://www.marketwatch.com/story/mattels-stock-surges-after-alibaba-partnership-2017-02-14) to develop and sell new products for Chinese consumers through Tmall.com.
Shares of GigPeak Inc.(GIG) soared 13% after IDT Inc.(IDTI) said late Monday it would buy the communications and video-chip maker in an all-cash $250 million deal (http://www.marketwatch.com/story/idt-inc-to-buy-gigpeak-inc-for-250-million-all-cash-deal-2017-02-13).
Read:Tesla could decide to tap capital markets as its shares rally, analyst says (http://www.marketwatch.com/story/tesla-could-decide-to-tap-capital-markets-as-its-shares-rally-analyst-says-2017-02-13)
Other markets: Asian stocks finished mostly lower (http://www.marketwatch.com/story/asian-stocks-slip-ahead-of-yellens-testimony-2017-02-13), with the Nikkei 225 index closing down 1.1% amid strength for the Japanese yen . The dollar pivoted higher as Yellen began to speak in front of the Senate, and gained against the British pound (http://www.marketwatch.com/story/why-the-pound-plunged-the-most-in-12-days-after-uk-inflation-miss-2017-02-14) after U.K. inflation data didn't rise by as much as expected.
Gold prices were slightly lower, while oil prices firmed up. European stocks were flat to lower.
--Sara Sjolin contributed to this article.
(END) Dow Jones Newswires
February 14, 2017 12:07 ET (17:07 GMT)
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