Catalyst for Today’s Rally

Stocks surged across the board Wednesday as investors rallied around upbeat remarks from Bernanke that implied policy makers may finally take a breather after two years of interest rate increases. Aside from the Fed Chairman's seemingly dovish commentary that sent short sellers fleeing for cover following weeks of market losses, signs of a potential pause pushed bond yields to session lows and allowed equity investors to look beyond a disappointing CPI report, using solid earnings news and another pullback in oil as additional catalysts to get back into a market that was showing signs of being oversold.

At his semi-annual testimony before the Senate Banking Committee, Bernanke acknowledged that "moderation in economic growth" will lead to a "gradual decline in inflation in coming quarters," welcoming news that overshadowed a fourth straight 0.3% rise in core CPI. That left the year-over-year increase at 2.6%, which is well above the Fed's comfort zone of 1.75-2.00%. Be that as it may, Bernanke's commentary superseded a report that typically has the potential to move stocks and bonds in noticeable fashion.

The optimism about a possible pause was further echoed in fed funds futures, which were implying a roughly 90% chance of a 1/4% rate increase to 5.50% on August 8th following the CPI report, but moved back to pricing in only a 68% chance of another hike and are no longer pricing in any tightening at the three FOMC meetings thereafter.

Of the 10 sectors trading higher, the most influential of them all — Financials — paced the way to the upside. The sector surged 2.7% and climbed back into positive territory for the year after J.P. Morgan Chase (JPM 42.06 +1.35) said Q2 net income more than tripled and retail banking.

From Yahoo Finance.