Stocks Gain as Yellen Signals Slow Pace on Rates

U.S. stocks and government bonds rose while the dollar fell Tuesday after the Federal Reserve chairwoman said global economic uncertainty warranted a cautious approach to raising interest rates.

Janet Yellen’s remarks at the Economic Club of New York came after other Fed officials gave upbeat assessments of the U.S. economy in recent days and left the door open to a rate increase as soon as April.

“The market is properly interpreting this as being prudent,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. “She views the risks as such that there’s no reason to hurry a rate hike.”

The Dow Jones Industrial Average and the S&P 500 closed at their highest levels of the year, and the S&P 500 returned to positive territory for 2016, up 0.5%.

The Dow rose 97.72 points, or 0.6%, to 17633.11, after being down as much as 101 points early in the session. The S&P 500 climbed 17.96, or 0.9%, to 2055.01 and the Nasdaq Composite rose 79.84, or 1.7%, to 4846.62.

Ms. Yellen “effectively eliminated April at this point as a likely meeting for a rate increase,’’ said Christopher Sullivan, who manages $2.3 billion as chief investment officer at United Nations Federal Credit Union.

ENLARGE

U.S. Federal Reserve Chairwoman Janet Yellen pictured in February. On Tuesday after her speech, U.S. stocks and government bonds rose while the dollar fell. Photo: nicholas kamm/Agence France-Presse/Getty Images

Federal-funds futures, used by investors and traders to bet on central-bank policy, showed a 5% likelihood of a rate increase from the Fed at its April 2016 policy meeting, according to data from CME Group. The odds were 12% Monday. The probability of a rate increase at the Fed’s June meeting was 28%, down from 38% Monday.

U.S. government bonds strengthened, pushing yields to their lowest level in a month. The yield on the 10-year Treasury note fell to 1.814%, from 1.870% Monday.

The yield on the two-year note, which is highly sensitive to expected changes in interest rates, also reached its lowest in a month. The yield fell to 0.796%, from 0.869% Monday.

The WSJ Dollar Index, which measures the buck against a basket of 16 currencies, dropped 0.8%.

Gold for March delivery rose 1.3% to $1,235.60 an ounce.

Bank shares lagged behind. Higher interest rates tend to increase the difference between what banks charge on loans and pay on deposits, which should boost earnings.

The KBW Nasdaq Bank index of large U.S. commercial lenders declined 0.8%. Bank of America BAC -1.47 % declined 20 cents, or 1.5%, to $13.42. Wells Fargo WFC -1.33 % fell 65 cents, or 1.3%, to 48.05, and J.P. Morgan Chase JPM -0.62 % fell 37 cents, or 0.6%, to 59.03.

Investors globally were also looking ahead to Friday’s U.S. job report as they assess the strength of the economy.

“We see a broad-based pickup not only in inflation but also wage inflation,” said Bo Christensen, chief analyst at Danske Invest. If the data remains on track, he expects two to three interest-rate increases this year.

Meanwhile, U.S. crude oil fell 2.8% to $38.28 a barrel on concerns the global supplies of crude remain too high to keep prices near $40 a barrel.

The Stoxx Europe 600 edged up 0.5%, snapping a four-day streak of declines.

The Shanghai Composite Index fell 1.3%, while Japan’s Nikkei Stock Average sank 0.2%.

—Riva Gold contributed to this article.

Write to Aaron Kuriloff at [email protected] and Min Zeng at [email protected]