Now, while her answer looks to have sparked a 200 point selloff in the Dow, her answer itself shouldn't concern anybody who has even a short-term interest in the price of a share of stock. The short-timer's concern ought to be the fact that the Dow sold off by 200 points on her answer. An answer that, upon proper scrutiny, should've sparked a 200 point rally. That's right, the fact that the Chairperson of the board of geniuses that sets the rate banks pay for short-term money says they may be raising that rate sooner than later suggests that the board believes the economy is going to begin picking up sooner than later. Which should be very good news for stock prices.
So why wasn't her answer very good news for stock prices? Well, it could be a number of things, but my best guess has to do with interest rate risk. About the only thing I can say with confidence that the Fed has achieved with 3+ trillion worth of dollar creation is that they've managed to keep interest rates artificially, and unprecedentedly, low. And the world has to be on pins and needles as to the ultimate impact on asset prices of rates rising at what could be an unprecedentedly rapid pace---given that rates have been suppressed at unprecedentedly low levels for an unprecedentedly long period of time.
Suffice it to say that there is a lot of money in bonds that could exit in a hurry should its owners decide that the days of record low interest rates and/or record low economic growth are about to end. And if bondholders do exit their positions in a hurry, you'd see a spike in interest rates that could do a number on economic (and, thus, stock market) sentiment in a hurry. Here's a 5-day chart of the yield on the 10-year treasury bond (notice the straight shot up yesterday afternoon. That was when Ms. Yellen said "six months"):
yahoofinance.com (click chart to enlarge)
At the end of the day, however, rising rates in response to a rising economy should indeed be, short-timer reactions notwithstanding, good news for stock prices (but no guarantees). It's just that the Fed has, in my estimation, got things all out of whack. The good news is, come hell or high interest rates, the market will straighten it out...