Stocks closed at record levels on Wednesday after positive remarks from Federal Reserve Chairman Ben Bernanke ignited a broad rally which touched nearly every sector.
The Dow Jones Industrial Average ended at a new all-time record high while the S&P 500 climbed to levels not seen in more than six years. Gains on the Nasdaq were even better as bargain-hunting investors snapped up semiconductor stocks.
The Dow Jones Transportation Average and the Dow Jones Utility Index each closed at a new historical high. It was the first time the three major Dow averages made a new high since March 1998 and is seen as a bullish sign to investors who follow Dow Theory.
Bernanke, testifying before Congress today, said that while tackling inflationary pressures has been the predominant concern for the central bank, "the last reads on inflation have been encouraging." The Fed chairman also noted that the housing market was showing signs of stabilizing.
"The equity markets liked what they heard," Michael Cuggino, president of Permanent Portfolio Funds, told CNBC.com. "They probably liked even more that Bernanke made references to the easing of inflationary pressures going forward."
Cuggino noted that one day of gains in the market doesn't mean a whole lot for the bigger picture but the lower possibility of future rate increases bodes well for stocks.
"(Bernanke) gave us a little flavor that maybe the Fed is easing concerns on inflation, and if you extend that thinking out that could put the brakes on any future interest rate hikes and I think stocks moved as a result," said Cuggino.
The Dow and the S&P have both logged two-day gains of about 1.5%, the biggest two-day advance since October and September, respectively.
The positive action was widespread, with advancing stocks outnumbering decliners on the New York Stock Exchange by a ratio of more than two to one. The positive action may be an indicator that investor concerns for a short-term pullback have somewhat receded.
"People are just not worried about it because when we were at record highs before, the price-to-earnings multiple was 31 times but now we're at half that," said Stuart Freeman, chief equity strategist at AG Edwards, in a CNBC.com interview. "The stocks have kept way behind earnings growth."
However, Freeman noted that it has taken some time for investors to feel more comfortable with the market since the recession of 2001 to 2003. "I think they've been slowly getting back in," he said.
Mike Malone, trading analyst at Cowen and Company, said Bernanke's remarks supported similar comments from the Fed two weeks ago after it voted to to keep interest rates steady.
"I think the more confirmation we get on that inflationary pressures are set to decline, the more comfortable (investors) will feel about putting money to work," Malone said in an interview with CNBC.com.
Technology stocks led gains among the 10 S&P 500 sectors and utility stocks also advanced, while energy stocks lagged as crude prices fell.
New York light crude futures closed at $58 a barrel as supplies appeared adequate amid forecasts of warmer weather.
The dollar fell to a six-week low against the euro. The Fed chairman's comments also triggered a rally in bond prices, sending yields for the benchmark 10-year U.S. Treasury lower.
"Call it another Bernanke bounce," Barry Hyman, Market Strategist at EKN Financial Services, told CNBC.com. "His commentary leads us to this growth scenario for the economy with inflationary prospects declining. That's what the market wants to hear."
Shares of DaimlerChrysler rose 8% on speculation the company could spin off its Chrysler division, saying it would consider "far-reaching" strategic options. Daimler also announced 13,000 workers in its Chrysler unit will lose their jobs as part of the company's restructuring.
Semiconductor equipment maker Applied Materials closed higher on heavy trading volume following the company's solid first-quarter earnings report, announced after the bell Tuesday. Applied Materials also issued a bullish outlook for the second quarter and said it expects growth in the NAND flash memory market in the second half of the year.
Flash memory makers Micron and SanDisk, which declined last week due to fears of dropping memory prices, both saw shares rise on the news.
Shares of beverage giant Coca-Cola traded slightly lower despite the company reporting fourth-quarter earnings two cents above analysts' expectations. Another Dow component, farm equipment maker Deere , said profit rose in the latest quarter, putting shares on pace for a new all-time record close.
European and Asian Markets Close Higher
The DAX closed in Germany up about 1% on DaimlerChrysler's restructuring plan and Commerzbank's announcement it will raise dividends due to record profits in 2006.
The Paris CAC-40 finished higher as shares of Michelin rose 4% ahead of the release of 2006 results set for Thursday. London's FTSE-100 also traded higher.
The Nikkei 225 Average continued to move higher, closing at a new seven-year high. Sony shares rose on plans to curb its chip spending, while investors bid up chip stocks such as Advantest and Tokyo Electron.
South Korea's Kospi Index closed with a gain of 1.2% with blue chips such as Hyundai Motor rallying after North Korea agreed to take steps towards ending its nuclear program, easing security risks in the peninsula.
Hong Kong's Hang Seng closed fractionally higher. China Mobile and HSBC Holdings both logged modest gains.