Yellen bolsters her dovish credentials, and sparks a rally

Janet Yellen
Getty Images

For once, the rumors were right.

Around lunchtime Tuesday, stocks began to slowly lift out of negative territory. This was right after Europe closed, and often when there is selling pressure in Europe (as there was at the time), our markets are weak. So no one paid too much attention to the fact that we started lifting right after Europe closed.

But by about 1 PM ET, as the market continued to lift, traders began discussing the idea that Janet Yellen's testimony might be much more dovish than was expected. The mainstream opinion was that she would placate Republicans and not go out of her way to emphasize that she would keep the bond program in place for as long as it took to convince her the economy was turning around.

But a small group kept arguing that she would be more dovish than that, and the market seemed to be responding to that idea as the day wore on. We closed at the highs, once again in record territory.

Most market rumors--especially those that juice the overall market--are almost always wrong. But this one was right.

Here's the problem: the rally on the dovish Yellen testimony happened yesterday. We moved almost 130 points in the Dow from noon to the 4 PM close.

So I'm not expecting a rocking up day.


1) So much for Macy's starting a trend. The retail earnings this morning are not mirroring Macy's surprisingly strong same store sales and earnings beat reported on Tuesday.

Kohl's, Dillard's, and Wal-Mart all missed on revenues. All three also missed on same store sales estimates, and both Kohl and Dillard's also missed on adjusted earnings per share.

Take Kohl's. This was a straight miss on sales: Same store sales were down 1.6 percent, below consensus that called for a fractional gain. They also lowered full year earnings estimates (to $1.59-$1.74 vs. $1.70 estimate), so that implies comparable store sales declines of 0 to two percent.

KSS is down big today, but remember the stock has had a strong run, up about 15 percent since their last earnings release. The lesson: Macy's renewed emphasis on strong marketing seems to have worked for them. However, they are looking like an outlier.

Wal-Mart's same store sales were down 0.3 percent, below expectations of flat to fractionally up, while fourth quarter guidance of $1.60-$1.70 vs. expectations of $1.69.

The retail environment remains "competitive" CEO Mike Duke said.

What's it all mean? Steve Kernkraut at Berman Capital summed it up nicely in three points: 1- Macy's did an exceptional job. 2- the lower and middle-end consumer are still more stressed than upper-middle, and 3- eCommerce is making huge dent in traditional shopping.

By CNBC's Bob Pisani