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Summers drops out, equities soar, yield falls

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Summers drops out, equities soar, yield falls

The stock market was sent soaring higher on Monday morning following some startling headlines. Early in the day it was announced that Larry Summers, a candidate for the coveted Federal Reserve Chairman position, pulled out of the race. For weeks wall street has speculated on who would receive the bid. Summers’ abrupt decision bolstered risk appetite as investors had felt he would take a more hawkish position regarding stimulus than other candidates if appointed. As a result of the decision, Fed Vice Chairman Janet Yellen take the position of front runner for the job. Yellen would be expected to continue Bernanke’s lax monetary course, the two largely see eye to eye on a number of decisions.

Early in the session the broad markets traded higher by triple digits. The Dow Jones Industrial Average jumped 150 points. The blue-chip index is having its biggest gain since July 11. All Dow components were higher, with Boeing(NYSE:BA) leading the way. The S&P 500 crossed above 1,700 and the Nasdaq rallied to a 13-year high. The Russell 2000 index hit an all-time high as the small-cap space caught a bid.

Moreover, high yielding equities caught significant attention. Utilities and materials caught a bid as interest rates fell. The idea of Summers as the next Fed Chair caused interest rates to move higher in recent weeks. Following the announcement 10 year bond yields fell by 10 basis points, a contrast to the trend over the last couple months. Up until this point, bond yields have risen sharply as fears of tightening monetary policy surfaced. The yield curve alongside volatility fell across the board. Going forward, in Yellen is given the position of Fed Chairman, many traders and investors alike fell the days of low interest rates will continue. Thus, the broad equities market should continue to catch a bid.

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