Positive earnings and a Fed that keeps the hopes of mortgage-backed securities investors alive through asset purchases lifted the stock market Wednesday.
The HW 30 – a composite index of key mortgage and housing stocks – finished the day up 1.37%.
HW 30 followed all the major stock indices higher after the market benefited from a week of higher earnings.
The Dow Jones Industrial Average left a lasting impression, hitting a three-year high of 15,821.63, while the Nasdaq and S&P 500 rose 1.15% and 0.80%, respectively.
The market performed well despite having a major day ahead of it. Federal Reserve Chair Nominee Janet Yellen is scheduled to speak before the Senate Banking Committee tomorrow as the confirmation process kicks off in the Senate.
Investors will be waiting eagerly for Yellen’s interchange with Senators and looking for signs that the new chair will maintain a dovish approach to Fed policy by continuing MBS and Treasury purchases until unemployment reaches the central bank's targeted goal.
Prepared testimony for Yellen’s presentation before the Senate Committee hit the wires early, with her speech reaching email boxes Wednesday afternoon.
While it doesn’t specifically state anything about the Fed’s timeline on asset purchases, Yellen clearly hints at her dovish tendencies, saying:
"We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession," she noted. "Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time."
The Fed Chair nominee said for this reason the central bank "is using its monetary policy tools to promote a more robust recovery."
She added, "I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy."
A day before her hearing, mortgage and housing stocks performed well, with most of the HW rising Wednesday.
Yellen, herself, acknowledged gains in the housing market in her prepared speech.
"Housing, which was at the center of the crisis, seems to have turned a corner—construction, home prices, and sales are up significantly," Yellen explained in her testimony. The HW 30 this week supports her assertions with banking and servicing stocks performing well overall.
Come tomorrow, the stock market will be reacting not only to Yellen’s presentation, but to how she responds to inevitable questions about the fate of quantitative easing.
