[New York Stock Market] Dollar and Treasury Yields Surge on FOMC Tightening Concerns... Dow Down 1.01%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed lower on the 20th (local time) as investors awaited the Federal Reserve's Federal Open Market Committee (FOMC) regular meeting, held over two days, to decide on further interest rate hikes. Amid expectations of aggressive tightening, the dollar and Treasury yields showed a rally.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 30,706.23, down 313.45 points (1.01%) from the previous session. The S&P 500, centered on large-cap stocks, fell 43.96 points (1.13%) to 3,855.93, while the tech-heavy Nasdaq dropped 109.97 points (0.95%) to 11,425.05.

Among sectors, all 11 sectors of the S&P 500 showed weakness, with real estate stocks notably underperforming. Iron Mountain plunged 9.84% from the previous close. Weyerhaeuser fell 5.96%, and American Tower declined 3.88%. Leading tech stocks such as Amazon (-1.98%), Nvidia (-1.54%), Alphabet (-1.87%), and Meta (-1.30%) also showed weakness.

Ford Motor Company slid more than 12% following a warning the previous day about an additional $1 billion in costs due to supply chain instability and high inflation. This was seen as another corporate warning of a global economic slowdown, following FedEx. Microsoft closed down 0.85% despite announcing a dividend increase. Beyond Meat dropped over 6% to a 52-week low after an executive was arrested for biting the nose of a disputing party. Fashion company Gap fell 3.26% after reports emerged that it had begun layoffs.

Investors closely monitored Treasury yield movements while awaiting the FOMC's interest rate decision, scheduled for 2 p.m. the next day.

According to FedWatch from the Chicago Mercantile Exchange (CME) Group, the federal funds (FF) futures market reflects an 84% probability that the Fed will raise rates by 0.75 percentage points. This effectively confirms a third consecutive giant step. The possibility of a 1 percentage point hike stands at 16%, leaving the door open for an ultra step. Earlier, following the Bank of Canada, the Swedish central bank also implemented a 1 percentage point hike the previous day.

Oxford Economics' Bostan Tik said, "We will closely watch Fed Chair Jerome Powell's rhetoric during the press conference following the rate decision," adding, "While Powell may not clearly indicate the size of the next rate hike, he could leave open the possibility of a significant increase in November." JP Morgan expects the Fed to raise rates more than anticipated by year-end, forecasting a 0.75 percentage point hike this week followed by a 0.5 percentage point increase in November. The Fed is also expected to release its dot plot and economic outlook at this meeting.

Amid expectations of aggressive tightening, Treasury yields are soaring. The 2-year Treasury yield, sensitive to monetary policy, approached 4%, marking the highest level in 15 years. The 10-year yield also surged to 3.604% before retreating slightly to around 3.55%. This is also the highest level since 2011. With aggressive tightening expected to continue this week among global central banks following Sweden and the U.S., Treasury yields in the Eurozone bond market are also showing a notable upward trend.

The dollar also strengthened. The Dollar Index, which measures the value of the dollar against six major currencies, rose to 110.200. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," climbed over 5% to the 27 level compared to the previous session.

Dominic Wilson of Goldman Sachs emphasized, "Fear of the upcoming recession is already reflected in stock market volatility," adding, "Investors should prepare for more potential turmoil."

Oil prices fell due to the strong dollar. On the New York Mercantile Exchange, October West Texas Intermediate (WTI) crude oil closed at $84.45 per barrel, down $1.28 (1.49%) from the previous day.

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