U.S. equities closed higher Tuesday, posting new record highs, as investors digested testimony from the top Federal Reserve official.
"The markets were anxiously awaiting Chair Yellen's comments, but not expecting anything out of the ordinary," said Myles Clouston, senior director at Nasdaq Advisory Services. "There's also some momentum chasing the market higher; we are at all-time highs."
The Dow Jones industrial average rose about 90 points, with Goldman Sachs contributing the most gains. The S&P 500 gained 0.4 percent, with financials outperforming, notching its 15th record close since Nov. 8. The Nasdaq composite advanced 0.3 percent, as Apple reached an all-time intraday high.
"It was expected of her to be a little hawkish," said Adam Sarhan, CEO of 50 Park Investments. "From her perspective, the stock market is at all-time highs and the economic data is improving, so it's very prudent for her to be hawkish."
U.S. Treasury yields ticked higher following Yellen's remarks, with the benchmark 10-year note yields trading around 2.4725 percent and the short-term two-year note yield advancing to 1.2383 percent.
"The probability of a rate hike [in March] are now higher. I think interest rates are reflecting that," said Lisa Hornby, fixed income portfolio manager at Schroders. "The probability of two rate hikes is pretty good. The rest depends on how the dollar evolves."
The dollar erased earlier losses against a basket of currencies, with the euro near $1.058 and the around 114.23.
"Janet Yellen ... paved the way for three rate hikes this year," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "She is sending a message that they are on their way toward normalization."
Market expectations for a rate hike next month rose to 23 percent from 16 percent following Yellen's remarks, according to Jefferies.
Tuesday also marked the first time Yellen testifies following President Donald Trump's election.
Economic data have broadly improved since Nov. 8, with sentiment and inflation metrics all ticking higher. The NFIB small business index, which measures small-business confidence, hit 105.9, the best read since December 2004.
Stocks in the U.S. have rallied sharply since Trump's election on hopes of lower corporate taxes, fiscal spending and deregulation. On Monday, the three large-cap indexes, along with the small-caps Russell 2000, hit record highs.
"I think there are still a lot of doubters on the market," said Eric Marshall, portfolio manager at Hodges Capital. "Whenever you have that scenario, it's a lot harder for the market to pull back."
Trump hinted last week that the administration will be releasing a "phenomenal" tax plan in the next two or three weeks.
"The Fed has talked about three rate hikes for this year, but if they see fiscal stimulus coming down the hill, they might be forced to raise in March," said David Kelly, chief global strategist at JPMorgan Funds. "There's a big wait-and-see attitude in terms of, do you pay for what the president promised through spending cuts or do you let the deficit grow."
"I think there should be some nervousness in the market about that," he said.
The gained 9.33 points, or 0.40 percent, to close at 2,337.58, with financials leading eight sectors higher and utilities lagging.
The Nasdaq advanced 18.62 points, or 0.32 percent, to end at 5,782.57.
About five stocks advanced for every four decliners at the New York Stock Exchange, with an exchange volume of 813.49 million and a composite volume of 3.496 billion at the close.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 10.89.
On tap this week:
8:30 a.m. Retail sales
8:30 a.m. CPI
8:30 a.m. Empire State manufacturing
9:15 a.m. Industrial production
10:00 a.m. Fed Chair Yellen testifies before House Financial Services Committee on economy
10:00 a.m. Business inventories
10:00 a.m. NAHB survey
12:45 p.m. Philadelphia Fed President Patrick Harker on economy
4:00 p.m. TIC data
8:30 a.m. Jobless claims
8:30 a.m. Housing starts
8:30 a.m. Building permits
8:30 a.m. Philadelphia Fed survey