[New York Stock Market] Expectations for Tightening Pace Adjustment Amid Recession Spread... Nasdaq Up 1.08%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed higher on the 28th (local time) despite the second-quarter gross domestic product (GDP) growth rate recording consecutive negative figures. The heightened recession concerns fueled bets that the central bank, the Federal Reserve (Fed), will soon slow down its pace of tightening.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,529.63, up 332.04 points (1.03%) from the previous session. The large-cap S&P 500 index rose 48.82 points (1.21%) to 4,072.43, and the tech-heavy Nasdaq index ended the day at 12,162.59, up 130.17 points (1.08%).

By stock, Ford, which reported earnings exceeding expectations after the previous day's close, rose 6.07% from the previous session. Comcast slid more than 9% due to weak broadband subscriber growth in the second quarter despite better-than-expected earnings. Meta Platforms fell 5.22%. JetBlue Airways closed down 0.36% following news of its $3.8 billion acquisition of Spirit Airlines. Spirit Airlines rose 5.60%.

Solar stocks surged after news that the U.S. Senate reached an agreement on climate change spending. SunPower's stock price soared more than 18%. Sunrun jumped 29.97%, and Sunnova rose 27.93%.

Investors focused on the second-quarter GDP preliminary figures released that day, recession concerns, Fed's tightening outlook, and corporate earnings.

According to the U.S. Bureau of Economic Analysis (BEA), the preliminary GDP growth rate for the second quarter was -0.9% annualized. As feared, it marked two consecutive quarters of negative growth following -1.6% in the first quarter. Typically, two consecutive quarters of negative growth are considered a technical recession.

However, meeting the technical recession criteria does not mean the U.S. economy has officially entered a recession. The determination is made by the National Bureau of Economic Research (NBER) through an official declaration. Treasury Secretary Janet Yellen emphasized in a press conference that "we are witnessing a clear slowdown in economic growth," but "a recession refers to a broad and widespread weakening of the economy, which is not currently happening."

Yellen also assessed that the labor market remains strong, and various indicators such as household income and industrial growth are not bad. Employment increased by 1.1 million in the second quarter, contrasting with the 240,000 job losses in the first three months of the previous recession. The U.S. unemployment rate has remained at 3.6% for four consecutive months, near a 50-year low. Wages are also on the rise. The weekly initial jobless claims, released that day at 256,000, turned downward for the first time in four weeks.

These recession concerns rather strengthened expectations that the Fed may slow the pace of its tightening policy. Fed Chair Jerome Powell, after the giant step hike the previous day, left open the possibility of another giant step in September but mentioned that "at some point, it will be appropriate to slow the pace of rate hikes." This was a key remark that boosted the stock market gains the day before.

Max Wasserman, founder of Miramar Capital, said, "The Fed is saying that the tightening cycle is almost over," adding, "The GDP figures released today tell people there is no convincing reason for the Fed to deliver another 0.75 to 1.0 percentage point hike." He also noted that even if the Fed raises rates, it is unlikely to take another giant step as before.

Corporate earnings are also exceeding expectations. About 49% of S&P 500 companies had reported earnings before the market opened that day. According to FactSet, 71.5% of these companies beat estimates. Apple, Amazon, and Intel are scheduled to report earnings after the market close.

As recession concerns increased, U.S. Treasury yields fell to the 2.66% range in the New York bond market. The decline in Treasury yields indicates increased demand for the safe-haven government bonds, pushing bond prices higher. The 2-year yield, sensitive to monetary policy, is above 2.8%, surpassing the 10-year yield. This inversion of short- and long-term Treasury yields is typically seen as a recession warning sign.

Crude oil prices fell amid growing U.S. recession fears. On the New York Mercantile Exchange, September West Texas Intermediate (WTI) crude oil closed at $96.42 per barrel, down 84 cents (0.86%) from the previous session.

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