[New York Stock Market] Sharp Drop on Fed's Quantitative Tightening Announcement... Nasdaq Down 2.22%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York stock market closed lower on the 6th (local time) as the central bank, the Federal Reserve (Fed), hinted at the possibility of starting quantitative tightening (QT) next month. The Nasdaq index, which is focused on interest rate-sensitive tech stocks, fell more than 2%. Meanwhile, government bond yields continued their sharp rise.

On this day in the New York stock market, the tech-heavy Nasdaq index closed at 13,888.82, down 315.35 points (2.22%) from the previous session. The large-cap S&P 500 index fell 43.97 points (0.97%) to 4,481.15, and the Dow Jones Industrial Average dropped 144.67 points (0.42%) to 34,496.51. The small-cap Russell 2000 index declined 29.11 points (1.42%).

By individual stocks, the decline in interest rate-sensitive tech stocks was prominent. Nvidia slid nearly 6% from the previous close. Apple (-1.85%), Microsoft (-3.66%), Amazon (-3.23%), and Tesla (-4.17%) also closed lower across the board. On the other hand, utilities, healthcare, and consumer staples, which are less affected by economic recession, showed gains. Johnson & Johnson rose about 2%. Walmart (2.32%) and Coca-Cola (1.01%) also advanced.

Investors focused on the release of the Federal Open Market Committee (FOMC) regular meeting minutes and the Fed’s anticipated tightening moves indicated therein, geopolitical risks surrounding Ukraine, and the possibility of Western sanctions against Russia. Quincy Crosby, Chief Strategist at LPL Financial, said, "The Fed warned those who think it will be more dovish in the fight against inflation," adding, "Their message is 'You are wrong.'"

According to the March FOMC regular meeting minutes released by the Fed on this day, participants generally agreed to reduce the Fed’s holdings of Treasury securities by $60 billion and mortgage-backed securities (MBS) by $35 billion per month. Many FOMC participants mentioned that "if inflationary pressures rise or strengthen, it may be appropriate to raise the benchmark interest rate by 0.5 percentage points or more at future meetings," signaling a ‘big step’.

On the same day, Patrick Harker, President of the Federal Reserve Bank of Philadelphia, emphasized the need for consecutive rate hikes, stating, "Inflation is progressing too high, and we are very concerned about it," joining the hawkish remarks trend following Vice Chair nominee Lael Brainard and Esther George, President of the Federal Reserve Bank of Kansas City.

Immediately after, in the bond market, the yield on the U.S. 10-year Treasury note briefly exceeded 2.66%, marking a three-year high. Even after the FOMC minutes release, Treasury yields remained at elevated levels. Balance sheet reduction has a greater impact on long-term interest rates. James Caron of Morgan Stanley said, "The 0.5 percentage point hikes in May and June have started to become a reality," adding, "This is not a tailwind for the stock market."

Geopolitical risks surrounding Ukraine also continue. Additional sanctions are being imposed, which are weighing on the market. On this day, the U.S. banned new investments in Russia and imposed additional sanctions that completely block Russia’s largest state bank, Sberbank, and the largest private bank, Alfa Bank, from the U.S. financial system. President Putin’s two daughters, key aides, and their families were also added to the sanctions list.

On this day, Ukrainian authorities announced that Russia is preparing a new offensive in the Donbas region, including Luhansk, after reorganizing its military forces.

International oil prices fell below $100 following news that the U.S. and International Energy Agency (IEA) member countries will release additional strategic reserves. On the New York Mercantile Exchange, May West Texas Intermediate (WTI) crude oil closed at $96.23 per barrel, down $5.73 (5.6%) from the previous session.

This content was produced with the assistance of AI translation services.