NEW YORK - Reassuring words from the new head of the Federal Reserve sent stocks soaring Tuesday and gave the market its longest winning streak this year.
The Dow Jones industrial average jumped nearly 200 points after Fed Chairman Janet Yellen said she would continue the central bank’s market-friendly, low-interest vrate policies.
Investors also welcomed news that Congress appeared poised to raise the U.S. borrowing limit without the political drama that happened late last year. That would avert the threat of a default on the U.S. government’s debt.
“Many of the risks everyone had their eyes on for 2014 are quickly being cleared away,” said Kristina Hooper, head of U.S. investment strategies for Allianz Global Investors.
On Tuesday, the Dow Jones industrial average rose 192.98 points, or 1.2 percent, to 15,994.77. It was the Dow’s third triple-digit advance in four days.
The Standard & Poor’s 500 index rose 19.91 points, or 1.1 percent, to 1,819.75, and the Nasdaq composite rose 42.87 points, or 1 percent, to4,191.04. The Nasdaq is now in positive territory for 2014, while the S&P 500 and Dow are down 1.5 percent and 3.5 percent this year, respectively.
Investors had two points of worry resolved this week, analysts said.
Yellen, in her first public comments since taking over for Ben Bernanke at the Fed last week, told Congress that she expects a “great deal of continuity” with her predecessor.
Yellen said she supports Bernanke’s view that the economy is strengthening enough to withstand a pullback in the Fed’s stimulus, but that interest rates should stay low to encourage more growth.
“She’s being well received [by investors],” said Rob Stein, chief executive officer of Astor Investment Management in Chicago.
Politicians also appear to have reached an agreement over raising the nation’s borrowing limit, sometimes called the “debt ceiling.”
House Speaker John Boehner said Tuesday that he would allow a vote to raise the borrowing limit without any conditions attached. The announcement came a few days after Treasury Secretary Jack Lew said the federal government would exhaust its ability to borrow money by Feb. 27. Lew urged Congress to pass a bill to raise the limit as soon as possible.
The approaching deadline had been a lingering source of worry for investors.
The surge in the past four days has helped the market avoid its first “correction” since 2011. That’s when an index falls 10 percent or more from a recent peak.
The S&P 500’s recent decline pushed the index down as much as 5.8 percent from its peak of 1,848, reached Jan. 15.
With the recent surge and signs of volatility fading, the market’s “mini” correction may have been just enough for investors. The CBOE Volatility Index, known better as the “VIX” and an often-quoted sign of fear among investors, dropped 5 percent Tuesday. The index is at its lowest level in three weeks.
“So many people expected a significant correction that it seemed like it was almost predestined to happen,” Allianz’s Hooper said.
Business, Pages 26 on 02/12/2014