After beginning the day lower, U.S. equities finished to the upside, as investors appeared to take testimony from Fed Chair Jerome Powell in his confirmation hearing in stride. Powell suggested a soft landing as the Central Bank moves to remove its emergency stimulus measures and travel down the path to tighter monetary policy. Much of the downside volatility as of late seems to have come courtesy of a jump in bond yields amid heightened inflation pressures, increasing investor expectations that the Fed and other global central banks may quickly accelerate the tightening of their monetary policies. In economic news, small business optimism improved more than expected but inflation and labor shortages remained sore spots. On the corporate front, CVS Health, Illumina and Shake Shack issued upbeat guidance. Treasuries were mostly higher, with yields on the longer end seeing pressure and the U.S. dollar was lower, while crude oil prices and gold traded solidly higher. Europe finished with widespread gains, while markets in Asia were mixed as Japan returned to action from a holiday break.

The Dow Jones Industrial Average rose 183 points (0.5%) to 36,252, the S&P 500 Index increased 43 points (0.9%) to 4,713, and the Nasdaq Composite was 211 points (1.4%) higher at 15,153. In heavy volume, 4.0 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil jumped $2.99 to $81.22 per barrel. Elsewhere, the gold spot price advanced $23.40 to $1,822.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.4% to 95.62.

CVS Health Corporation (CVS $106) raised its 2021 fiscal year earnings-per-share (EPS) guidance and affirmed its profit outlook for 2022, ahead of today's webcast with investors. Shares traded to the upside.

Illumina Inc. (ILMN $424) announced that it expects fiscal year 2021 revenue that is above the Street's forecasts, while issuing a 2022 revenue outlook that came in above expectations. Shares of ILMN were over 15% higher.

Shake Shack Inc. (SHAK $77) announced that it sees Q4 revenues of $203.3 million and a 20.8% increase in same-store sales, ahead of the Street's forecasts for sales of $198.0 million on a gain in same-store sales of 16.9%. Shares rallied over 10%.

As noted in our 2022 Schwab Market Outlook: Ebb Tide, while overall stock market performance was strong in 2021, there has been a lot of churn beneath the surface. We look at the question of will U.S. stock indices begin to reflect more of that weakness in 2022? It's possible, especially as the world's major central banks begin to drain the liquidity that has supported financial markets since the start of the COVID-19 pandemic in March 2020. But major uncertainties remain, including the pace of inflation, how central banks will react to it, and the direction of the virus.

Find all our market commentary on our Market Insights page and follow us on Twitter at @SchwabResearch.

Small business optimism ticks higher, Powell's confirmation hearing begins

The National Federation of Independent Business (NFIB) Small Business Optimism Index for December ticked slightly higher to 98.9 from November's 98.4 level, versus the Bloomberg estimate of a rise to 98.7. The report pointed out labor shortages and inventory shortages continue to impact business operations. The NFIB said, "Small businesses unfortunately saw a disappointing December jobs report, with staffing issues continuing to impact their ability to be fully productive, while inflation is at the highest level since the 1980s and is having an overwhelming impact on owners' ability to manage their businesses."

Treasuries were mostly higher, as the yield on the 2-year note was flat at 0.90%, while the yields on the 10-year note and the 30-year bond were 3 basis points lower at 1.75% and 2.08%, respectively.

The Treasury yield curve has steepened noticeably to begin the year as the markets grapple with the prospect of Fed tightening and the rapid spread of the omicron variant. The steepening was amplified by last week's hawkish minutes from the Fed's December meeting, which suggested along with accelerated tapering and multiple rate hikes this year, it may begin to reduce its balance sheet sooner than expected. The markets also paid close attention to today's confirmation hearings for a second term for Fed Chair Jerome Powell, looking to see if he provides any guidance on the timing of the first rate hike and how many increases may be in store. In his testimony, Powell suggested a soft landing as the Central Bank moves to remove its emergency stimulus measures and travel down the path to tighter monetary policy, adding that the U.S. economy is healthy enough to move in that direction.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, We Can Work It Out: Update on Labor Market, the labor market remains tight—hence the stepped-up pace of balance sheet tapering by the Federal Reserve, and the market now expecting multiple rate hikes this year. One historical nugget of truth to keep in the back of your mind as the Fed embarks on its rate hiking cycle: in the post-WWII era, every time (12 occurrences) that the Fed was raising rates—and the three-month moving average of the unemployment rate rose by at least .35 percentage points—a recession has unfolded. For now, the good news is that the unemployment rate continues to descend; but keen observers will understand the potential economic implications of an eventual turn back up—especially if rate hikes are still underway.

The first look at the December inflation picture will come tomorrow, courtesy of the Consumer Price Index (CPI), forecasted to have increased 0.4% month-over-month (m/m) following November's 0.7% jump, while the core rate, which excludes food and energy, are expected to have gained 0.5% m/m. The MBA Mortgage Application Index for the week ended January 7 is also on tap, while in afternoon action the Fed will release its Beige Book—an anecdotal read on the nation's business activity—used as a tool for its upcoming monetary policy meeting scheduled for January 25-26.

Europe higher as growth stocks rebound, Asia mixed as Japan returns to action

European equities finished higher, with the Energy and Financials sectors continuing to climb, while growth-related sectors, such as Information Technology, rebounded from recent weakness that came amid a rise in global bond yields. The markets have stumbled as of late on the recent jump in global bond yields, which have been fostered by expectations that monetary policies across the world are heading down the tightening path, with the Fed in the U.S. signaling a more aggressive campaign and the Bank of England already starting to raise rates. Moreover, the markets continued to monitor the rapidly spreading omicron variant which appears to be less severe. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Omicron: Will the Virus Wave Pattern Repeat?, how we shouldn't necessarily expect this wave to unfold the same as the others. Jeff adds that the rest of the month may hold policymaker responses to what we don't yet know about omicron's effects, resulting in continued volatility. He also notes that this may be tempered by a potential delay in monetary policy tightening and a backdrop of strong global economic growth. In economic news, Spain's industrial output rebounded in November, and Italian retail sales unexpectedly declined for November. The euro and British pound were both higher versus the U.S. dollar. Bond yields in the Eurozone were mixed and rates in the U.K. came under pressure.

The U.K. FTSE 100 Index and Spain's IBEX 35 Index were up 0.6%, France's CAC-40 Index advanced 1.0%, Switzerland's Swiss Market Index increased 0.9%, Germany's DAX Index rose 1.1%, and Italy's FTSE MIB Index gained 0.4%.

Stocks in Asia finished mixed, with markets in Japan returning from yesterday's holiday, while the markets continue to grapple with the omicron variant, elevated inflation expectations, and the prospect that global central banks may be heading closer to tightening monetary policy. Schwab's Jeffrey Kleintop in his latest article, Top Global Risks of 2022, touches on how future COVID waves may not resemble those of 2021, while also offering four additional risks, in no particular order: shortages turn into gluts, rate hikes slower than expected, China goes from cracking down to propping up, and geopolitical surprises. Whether or not these risks come to pass remains to be seen, Jeff adds, but a new year almost always brings new surprises. In economic news, Australia's exports rebounded in November and its retail sales rose more than expected for that month, and Japan's Leading Index improved more than expected for November.

Japan's Nikkei 225 Index declined 0.9%, with the yen holding onto yesterday's gain, and China's Shanghai Composite Index decreased 0.7%, while the Hong Kong Hang Seng Index and South Korea's KOSPI Index both finished little changed. Australia's S&P/ASX 200 Index traded 0.8% to the downside, but India's S&P BSE Sensex 30 Index bucked the trend and advanced 0.4%.

Items on tomorrow's international economic calendar include CPI, PPI and new yuan loans from China, PPI from Germany, and industrial production from the Eurozone.