Stocks rolled almost 2% higher last week, spurred by dovish comments on interest rates from Federal Reserve Chair Janet Yellen. Goldilocks economic data—not too hot to force an interest-rate hike soon, nor too cold to make investors fret about slowing U.S. growth—also gave equities a lift.

Yellen’s remarks on Tuesday that the Fed should proceed cautiously with respect to rate hikes put investors into a safe space, and stock prices jetted up from there. After a poor start to 2016, the major indexes are just a few percentage points below all-time highs.

As has been the case for months, comments from various Fed officials have bounced between dovish and hawkish, and have driven the market first one way and then another. Positive jobs data and a weaker dollar—down about 4% this year—also supported the rally.

The Dow Jones Industrial Average jumped 277 points, or 1.6%, to 17,792.75 last week, and rose 1.5% in the first quarter. The Standard & Poor’s 500 index rose 37 on the week to 2072.78, and 0.8% in the first quarter. The health-care sector fell 6% in the first quarter, the worst performer. The Nasdaq gained 3%, to 4914.54, last week.

While there has to be concern with the market’s overreliance on Fed chatter, one good sign last week was that shares rose even though oil prices fell, the first time that has happened in many weeks. Crude dropped 7% on the week, to $36.79 per barrel.

On Friday, the Labor Department reported higher-than-expected March nonfarm payrolls. The unemployment rate ticked up to 5% from 4.9%, but that was because more Americans entered the labor force, a positive indicator. Separately, U.S. manufacturing data suggested that the economy is expanding again.

The employment report was decent, but Yellen’s comments did a lot to reassure investors that the Fed intends to tighten monetary policy gradually, says Peter Jankovskis, co-chief investment officer at Oakbrook Investments.

Still, how long will the Fed be able to prop up the market? And, asks John De Clue, chief investment officer of the Private Client Reserve of U.S. Bank, will the Fed’s continued reinforcement of a “gradual” rate rise turn into a “one-trick pony”? At what point, he adds, does the market interpret Fed dovishness as symptomatic of an economy that isn’t getting sustainably stronger? If that happens, says De Clue, it will make investors worry about corporate profit growth.

In the long run, investors want to see interest-rate hikes that indicate the U.S. economic engine is revving strongly enough to withstand higher rates, De Clue says.

(Source: Barrons Online)