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Whether stocks can keep rallying may depend on how well Fed Chair Jerome Powell handles Congress on Tuesday.
Powell makes his first major appearance as head of the Federal Reserve before the House Finance Committee on Tuesday at 10 a.m. ET. He will provide the Fed chair's semi-annual testimony on the economy again before the Senate on Thursday.
The markets have been anxious about what Powell will say on inflation. The worry is that if the Fed expects an acceleration in inflation, it could see that as a reason to raise interest rates more than the three times it currently has forecast. The Fed's next official forecast is released after its meeting March 21, where it is expected to raise rates for the first time this year.
"I think he's going to avoid getting boxed in, and there's no need or urgency to communicate," said George Goncalves, head of fixed-income strategy at Nomura. "He has not had his first official meeting on his watch, so how can he really deviate from the prior agenda without having run it by the committee?"
Powell is not an economist and has a reputation of speaking simply, clearly articulating Fed policy.
"He could be a great presenter. That could be enough to calm the market down. We'll understand where he's trying to take policy," he said.
The Fed provided a road map for Powell's comments in its Monetary Policy Report on Friday. "The meat of the message is going to be out there. The variables we don't know are what kind of questions he's going to get," said Goncalves.
The bond market was tame in the session before Powell's testimony. Yields, which move inversely to price, were lower across the curve, and the 10-year Treasury yield was at 2.86 percent, down from 2.95 percent just last week.
That helped feed a sharp rally in stocks Monday, with the Dow up 399 points to 25,709 and the S&P 500 up 32 at 2,779.
Scott Redler, partner with T3Live.com, said the next level to watch on the S&P 500 is a band between 2,790 and 2,810. "It's the next level of resistance that could cause a bit of a pause, but how we digest there will be important to see if it can work its way back to the 2018 highs," said Redler.
Redler said the rally needs to broaden out and include more sectors.
"In order for us to get back to new highs, we're going to need more participation," he said. "Most of this bounce has been mega-cap tech and the banks. Energy and small-caps and bios have lagged."
He said the market will be hanging on Powell's comments. The new chair's views are expected to be similar to those of former Fed chair Janet Yellen, but perhaps slightly less dovish and more focused on banking deregulation.
"I don't think they want him to be dovish, but they don't want him to be too hawkish," said Redler. "They want him right in the middle."
Stocks should do better, as long as interest rates don't spike back up suddenly, which could happen if Powell sounds hawkish.
Following Powell's morning testimony Tuesday, two former Fed chairs will make a public appearance Tuesday afternoon. Former Fed Chair Ben Bernanke interviews former Fed Chair Janet Yellen in an event at Brookings at 2 p.m. ET.
Economic reports Tuesday include durable goods and advanced economic indicators at 8:30 a.m. ET. S&P/Case-Shiller home prices are expected at 9 a.m., and consumer confidence is due at 10 a.m.
Earnings are expected from Macy's, AutoZone, Discovery Communications, Toll Brothers, Camping World, SeaWorld, Steve Madden and American Tower. After the bell, Etsy, Square, Express Scripts, Axon, Workday, Hertz Global and Weight Watchers report.