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Markets soothed by Yellen, watching data

Federal Reserve Chair nominee Janet Yellen testifies during her confirmation hearing Nov. 14.
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Federal Reserve Chair nominee Janet Yellen testifies during her confirmation hearing Nov. 14.

The S&P 500 is on track to close out a sixth week of gains Friday, with traders more confident about what they can expect from the Federal Reserve.

Testimony from Fed Vice Chair Janet Yellen at her confirmation hearing before a Senate panel Thursday went as most market participants expected.

She defended the Fed's extraordinary easing programs, voiced concern about the economy, sluggish job growth and low inflation rate, and said the Fed has made headway on banking reform but must do more. Overall, she was viewed as dovish and very much aligned with Fed Chairman Ben Bernanke.

(Watch now: Yellen wasn't a big deal today: Pro)

Art Cashin, director of floor operations at UBS, said the market was soothed by the fact that the questioning was somewhat low key and there were no serious attacks by the Senators during Yellen's testimony. "I think the fact that the demeanor was quiet… kind of hints the transition will go smoothly," he said.

Yellen is expected to win confirmation next week to replace Bernanke when he leaves at the end of January.

(Read more: Taper,no taper—where does Yellen draw the line?)

Traders noted that Yellen did not detail a time frame for winding down the Fed's quantitative easing program, but they had not expected her to.

"She does not sound like someone who is ready to adjust policy," said Dan Greenhaus, global market strategist with BTIG. "She's been somewhat balanced. She talked about how she doesn't see evidence of reaching for yield. She doesn't sound like she's at a point where she wants to slow down."

(Read more: For Fed Chair Yellen, it was a perfect hearing)

Yellen also said she did not view the stock market as overvalued, and she said the Fed was weighing the risks of continuing easing as much as the benefits.

"In her support of the Fed's current policy stance, she was clear in stating that she felt the benefits of asset purchases and low-for-long policy rate guidance outweighed the costs in terms of financial stability and inflation risks," wrote Barclays economist Michael Gapen.

"Her task before the committee was to balance the need for accommodative policy today while convincing senators that she, in her role as Chair, would take seriously the mandate to achieve price stability and avoid generating excessive financial stability risks in pursuit of lower unemployment. We believed she cleared this hurdle and look for her nomination to be approved by the Senate Banking Committee and the Senate," he added.

(Read more: Critics to Yellen: Show some QE regret)

Cashin said traders are now weighing every bit of data, after some recent economic reports like the ISM manufacturing survey and the October employment report were better than expected. "That got people thinking December was on the table," for the Fed to reduce some bond buying, he said.

Friday's data includes import prices and the Empire state survey, both at 8:30 am. Industrial production and capacity utilization are at 9:15 a.m. and wholesale inventories are at 10 a.m.

(Read more: Is the Fed really driving up stock prices?)

The Dow ended Thursday up 54 points at 15,876, and the S&P was up 8 at 1790, both setting new records.

According to S&P/Capital IQ, there have been 35 closing highs in the S&P 500 this year. S&P analyst Howard Silverblatt points out that the market breadth is near a modern day record, with 445 S&P stocks up for the year, and 54 down, with 221 up at least 30 percent. Another 138 are up at least 50 percent and 79 are up at least 50 percent. Nine are up 100 percent or more.

—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.