[New York Stock Market] Fed 'Giant Step' Yet Relief Rally... Nasdaq Up 2.50%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed higher on the 15th (local time) despite the Federal Reserve's (Fed) aggressive tightening. This was due to some resolution of uncertainties surrounding monetary tightening and the confirmation of the Fed's strong determination to curb inflation through the largest rate hike since 1994, a giant step (0.75 percentage point rate increase).

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 30,668.53, up 303.70 points (1.00%) from the previous session. The S&P 500, centered on large-cap stocks, rose 54.51 points (1.46%) to 3,789.99, and the tech-heavy Nasdaq index closed at 11,099.16, up 270.81 points (2.50%). The small-cap Russell 2000 index also recorded 1,731.14, up 23.31 points (1.36%).

By sector, 9 out of 11 sectors in the S&P 500 showed gains in the afternoon session.

Technology stocks, which had recently taken a direct hit, rebounded as some uncertainty about tightening was resolved. Tesla closed up 5.48% from the previous session. Amazon rose 5.24%, and Netflix jumped 7.50%. Cyclical stocks such as Boeing (+9.46%) also increased. Travel stocks like Carnival (+3.36%), Delta Air Lines (+1.85%), and United Airlines (+2.43%) showed strong performance.

However, energy stocks underperformed. Marathon Oil (-2.50%), Schlumberger (-3.93%), Chevron (-1.96%), and ExxonMobil (-1.26%) all slid.

Investors closely watched the Fed's Federal Open Market Committee (FOMC) regular meeting and the subsequent press conference by Fed Chair Jerome Powell.

The Fed raised the federal funds rate by 0.75 percentage points from 0.75-1.00% to 1.50-1.75%. This is the first time in 27 years and 7 months since former Chairman Alan Greenspan in November 1994 that the Fed has raised rates by 0.75 percentage points at once. This demonstrated the Fed's firm resolve to stabilize soaring inflation at all costs.

In particular, the market focused on Chair Powell's indication that another giant step might be possible at the July meeting. However, he also added that "a 0.75 percentage point increase is an uncommon and strong measure." Regarding the possibility of a 1.0 percentage point hike at once, he said, "We will have to see," suggesting that future moves will depend on upcoming data.

As Chair Powell left the possibility of a giant step open but showed caution, the market rallied with relief. Major indices of the New York stock market, which had partially given up gains immediately after the rate hike announcement at 2 p.m., expanded their gains again.

Quincy Crosby, Chief Equity Strategist at LPL Financial, said about the Fed's decision, "It reflects the Fed's determination to achieve inflation stability," and added, "Showing resolve is the priority now." Charlie Ripley of Allianz Investment Management also said, "Today's announcement confirms the Fed's commitment to respond more aggressively to the war against inflation despite potential consequences of rate hikes," and predicted, "Aggressive hikes will calm the market for the time being."

The dot plot released by the Fed on this day showed a median forecast for the year-end benchmark interest rate at 3.4%, which is 1.5 percentage points higher than the March estimate. The Fed lowered its forecast for U.S. real GDP growth this year from 2.8% to 1.7%.

On the same day in the New York bond market, the yield on the U.S. 10-year Treasury note fell from around 3.49% the previous day to around 3.2%. This was interpreted as a result of the European Central Bank (ECB) holding an emergency meeting and announcing measures to address the sharp rise in peripheral Eurozone government bond yields, which caused Eurozone bond yields to drop significantly. U.S. Treasury yields continued to decline even after the Fed's rate decision. The 2-year yield, sensitive to monetary policy, also fell to around 3.2%.

U.S. consumer indicators were weak. May retail sales released by the U.S. Department of Commerce showed a seasonally adjusted decrease of 0.3% from the previous month to $672.9 billion, far below the expert forecast of 1.0%.

International oil prices plunged. This was interpreted as a combination of news of increased U.S. crude oil inventories and the impact of the Fed's rate hike. On the New York Mercantile Exchange, July West Texas Intermediate (WTI) crude oil prices closed at $115.31 per barrel, down $3.62 (3.04%) from the previous session.

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