Stocks Rally On Yellen

U.S. stocks surged on Tuesday, with the Dow Jones Industrial Average rising triple digits and the Nasdaq Composite turning positive for the year, as Federal Reserve Chair Janet Yellen reassured Wall Street that the Fed would continue the central bank’s policy of providing monetary stimulus to bolster the economy.

Since January, the Fed has gradually been reducing the pace of that stimulus. After buying $85 billion in bonds per month since September 2012, the Fed said in December it would cut its purchases to $75 billion, and then trimmed the size of its quantitative easing program to $65 billion in January.

While the Fed appeared on course last month to taper once again at its next meeting in March, two consecutive months of tepid jobs growth have caused investors to wonder what the Fed will do next.

In prepared remarks, Yellen said the central bank plans to continue easing its stimulus program, a big driver of the 2013 stock market rally. She reiterated several times during the question and answer session that it would take a notable change in economic data for the Fed to change its plans.

And investors seem to be taking comfort in Yellen’s comments. CNNMoney’s Fear & Greed Index, which tracks various gauges of market sentiment, has been sitting in Extreme Fear mode over the past few weeks. But it moved up to plain old Fear levels thanks to Tuesday’s move higher in stocks. That could be a reflection of a new sense of calm in the markets after recent volatility.

Wednesday: Mortgage applications at 7 a.m. Eastern, St. Louis Fed President James Bullard at 8:45 a.m. Eastern. Treasury auctions $24 billion in 10-year notes at 1 p.m.

European markets finished higher, while Asian markets closed with sizable gains.

News Sources:  CNBC and CNN Money