Wall Street opened higher as financial stocks rose and euro zone central bank sources told Reuters the market had overinterpreted chief Mario Draghi's comments that the ECB was ready to start withdrawing the emergency stimulus for the economy. The sources clarified that Draghi intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening.
The financial index's 1.03 percent rise led the gainers in a broad rally. JP Morgan and Citigroup rose 1.2 percent, boosting the S&P.Equity valuations have come under focus at a time when inflation remains low, recent economic data has been tepid and President Donald Trump's pro-growth policies face delays. The S&P 500 is trading at nearly 18 times forward earnings estimates, well above its long-term average of 15 times.
Federal Reserve Chair Janet Yellen said on Tuesday the central bank would continue raising rates gradually and that by standard metrics, some asset valuations look high. Fed Vice Chair Stanley Fischer warned the central bank must remain vigilant in monitoring financial stability risks. San Francisco Fed head John Williams said investors may be getting overly complacent about risks and that "the stock market seems to be running pretty much on fumes." A planned vote on Republican healthcare bill to dismantle the Affordable Care Act was put off to after the Senate's July 4 recess.
The healthcare legislation, which has encountered resistance from several Republicans, is the first plank of President Donald Trump's domestic policy agenda, with investors eager for him to move onto his other plans, including tax cuts, infrastructure spending and deregulation. Trump's promises of a pro-growth agenda is partly behind the S&P's 13 percent rise since the November 8 election.
"A setback for health reform could put in question tax reform this year unraveling the 'Hope Rally'", Peter Cardillo, chief market economist at First Standard Financial. At 9:41 am ET (1341 GMT), the Dow Jones Industrial Average was up 98.89 points, or 0.46 percent, at 21,409.55, the S&P 500 was up 10.51 points, or 0.43 percent, at 2,429.89. The Nasdaq Composite was up 11.02 points, or 0.18 percent, at 6,157.65.
The technology index, which has risen about 17 percent since the start of the year, was the only laggard. Investors, concerned with the sector's lofty valuations, have been shifting to defensive sectors. Oil edged up but 0.2 percent but concerns remained that a three-year supply glut is far from over. Spectranetics jumped 26.2 percent to $38.40 after Dutch healthcare company Philips agreed to buy the company for $2.16 billion. KB Home was up 1.8 percent at $23.28 after the homebuilder increased its full-year forecast. Advancing issues outnumbered decliners on the NYSE by 2,179 to 456. On the Nasdaq, 1,603 issues rose and 685 fell.
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