[New York Stock Market] Rising Close After Fluctuations Awaiting FOMC... US Treasury Yields Surge

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market showed volatility on the 19th (local time) ahead of the Federal Reserve's (Fed) interest rate decision, but all closed higher. With growing expectations of the Fed's aggressive tightening, the U.S. 10-year Treasury yield briefly surpassed 3.5% during the session, hitting the highest level in 11 years.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 31,019.68, up 197.26 points (0.64%) from the previous session. The large-cap focused S&P 500 index rose 26.56 points (0.69%) to 3,899.89, and the tech-heavy Nasdaq index gained 86.62 points (0.76%) to close at 11,535.02. The small-cap Russell 2000 index also ended higher at 1,812.84, up 14.65 points (0.81%).

By sector, most S&P 500 sectors either rose or remained flat. Financial stocks such as JPMorgan Chase (+0.92%), Bank of America (+1.67%), and Wells Fargo (+0.86%) increased amid expectations of further rate hikes. Leading tech stocks including Apple (+2.51%), Tesla (+1.89%), Amazon (+0.91%), Nvidia (+1.39%), Meta (+1.18%), and Netflix (+1.46%) also rallied. On the other hand, Microsoft slipped slightly, hitting a 52-week low.

The healthcare sector underperformed following U.S. President Joe Biden's remarks in a CBS 60 Minutes interview aired the previous day, stating that the pandemic is over. Moderna dropped 7.14%, Novavax fell 6.51%, and Pfizer declined 1.28%. Additionally, Coinbase fell 5.5% as Bitcoin prices plunged. Wix.com surged nearly 16% after activist investor Starboard Value disclosed a 9% stake.

Investors are closely watching the Fed's FOMC meeting scheduled for the 20th-21st and movements in Treasury yields. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) rate futures market currently prices in an 82% probability of a 0.75 percentage point hike. The chance of a 1 percentage point increase stands at 18%.

Earlier released August Consumer Price Index (CPI) inflation came in at 8.3%, far exceeding market expectations, reinforcing the likelihood of aggressive Fed tightening. The upcoming FOMC will also release the dot plot outlining future rate paths. If Fed Chair Jerome Powell delivers a more hawkish message than expected or the dot plot signals higher year-end rate forecasts, additional downward pressure on the New York stock market is anticipated.

On this day in the New York bond market, the 10-year Treasury yield briefly broke through the psychological resistance level of 3.5%, soaring to 3.518%, the highest since April 2011. It later pared losses to close at 3.489%. This rise in Treasury yields is negatively impacting the stock market. The 2-year yield, sensitive to monetary policy, also climbed to 3.946%, approaching the 4% threshold, marking the highest level since 2007.

The inversion between short- and long-term Treasury yields deepened. The spread between the 2-year and 10-year yields widened to 46 basis points (1bp=0.01 percentage points), the largest since 2000. Tom Essaye of The Sevens Report commented, "This signals a slowing economy with a high likelihood of significant contraction within a few quarters," adding, "It is a message we need to continue paying close attention to."

Oil prices edged up slightly as investors remained cautious ahead of the FOMC. On the New York Mercantile Exchange, October West Texas Intermediate (WTI) crude oil closed at $85.73 per barrel, up 62 cents (0.7%) from the previous session.

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