[New York Stock Market] Unified Decline Due to Fed's 'High-Intensity Tightening'... Nasdaq Down 1.79%

[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 21st (local time) as the central bank, the Federal Reserve, raised the benchmark interest rate by 0.75 percentage points for the third consecutive time and indicated through the dot plot that high-intensity tightening would continue. Geopolitical tensions surrounding Europe and Russia escalated due to Russian President Vladimir Putin's military mobilization order, further chilling investor sentiment.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 30,183.78, down 522.45 points (1.70%) from the previous session. The S&P 500, centered on large-cap stocks, fell 66.00 points (1.71%) to 3,789.93, and the tech-heavy Nasdaq dropped 204.86 points (1.79%) to 11,220.19.

The New York stock market, which started higher in anticipation of the September Federal Open Market Committee (FOMC) regular meeting, gave up its earlier gains and turned bearish once the Fed's monetary policy decision was announced. It then reversed to an upward trend during Fed Chair Jerome Powell's press conference, only to turn downward again near the end of the briefing, showing extreme intraday volatility.

By sector, entertainment and travel stocks, which are vulnerable during recessions, saw notable declines. Major hotel and casino company Caesars closed down 8.04% from the previous session. Hilton fell 5.35%, and Marriott dropped 5.63%. Cruise companies Carnival and Royal Caribbean declined 6.81% and 5.52%, respectively. Airline stocks such as United Airlines (-5.37%), American Airlines (-5.30%), and Delta Air Lines (-4.86%) also underperformed.

The Fed's dot plot signaling a more aggressive tightening than initially expected caused interest rate-sensitive major tech stocks to retreat. Meta fell 2.72%, Tesla dropped 2.57%, and Apple (-2.03%), Amazon (-2.99%), and Alphabet (-1.84%) also slid. Meanwhile, General Mills surged nearly 6% on better-than-expected earnings. Beyond Meat, which had been controversial after its management bit a competitor's nose, rebounded from consecutive declines but slipped slightly again just before market close.

Investors closely watched the FOMC's monetary policy decision, the accompanying dot plot, economic outlook, and Chair Powell's press conference. With the Fed's 0.75 percentage point rate hike widely anticipated, market participants sought new clues on how high rates might go and how long elevated rates would be maintained.

The Fed announced it would raise the federal funds rate by 0.75 percentage points from the previous 2.25-2.50% range to 3.00-3.25%. As inflation showed little sign of easing despite aggressive tightening, the Fed took a giant step for the third consecutive time, pushing U.S. interest rates to their highest level since January 2008. The interest rate gap between South Korea and the U.S. widened again.

In the subsequent press conference, Chair Powell reaffirmed the Fed's hawkish stance to maintain a "restrictive" interest rate policy until inflation is firmly under control. He began by stating that his position had not changed since the Jackson Hole meeting and emphasized, "We will not consider cutting rates until we are very confident that inflation is moving down toward the 2% target." He added, "Policy needs to remain restrictive," stressing that this is to prevent greater pain in the future.

The market's focus was on the dot plot. The Fed projected the benchmark interest rate to reach the high 4% range next year, signaling a more aggressive tightening than market expectations. According to the dot plot, the median rate at the end of this year rose to 4.4%, up 1 percentage point from June. Among the 19 FOMC members, nine projected 4.25-4.50%, and eight projected 4.00-4.25%. Excluding today's giant step, this implies significant rate hikes in the remaining two meetings this year. The rate is expected to peak at 4.6% by the end of next year, then decline to 3.9% by the end of 2024 and 2.9% by the end of 2025. Notably, six of the 19 FOMC members forecast rates rising to 4.75-5.00% next year, leaving open the possibility of reaching the 5% range.

Following the announcement of aggressive tightening, Treasury yields surged. In the New York bond market, the yield on the U.S. 2-year Treasury note, sensitive to monetary policy, surpassed 4.1% immediately after the Fed's rate hike announcement?the highest level since 2007. The 10-year yield also briefly rose to 3.64% during the session but has since stabilized.

The U.S. dollar strengthened. The dollar index, which measures the dollar's value against six major currencies, rose nearly 1%, surpassing the 111 level. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," climbed to the 28 level.

Jeffrey Gundlach, CEO of DoubleLine Capital, appeared on CNBC and said, "The Fed should have acted sooner," warning that the cumulative effects of tightening would lead to a recession. He argued that the Fed should slow the pace of rate hikes. Regarding the Fed's year-end rate forecast of 4.4%, he dismissed it, saying, "I don't think they can achieve that." His view reflects growing concerns about economic slowdown and recession, suggesting the Fed will have no choice but to moderate its pace.

On the other hand, Jason Pride, Chief Investment Officer at Glenmede Trust, said, "Rates are currently at a neutral level and will exceed that with future hikes," recommending investors reduce equity exposure. Kevin Gordon, Senior Investment Research Manager at Charles Schwab, also noted, "Some in the market do not believe the Fed will continue to apply the brakes," but he drew a clear line, saying, "That is very unlikely." He explained that investors hoping for the Fed to halt tightening quickly react whenever Chair Powell mentions signs of low growth or worsening indicators. He interpreted Powell's earlier reference to "pain" in his Jackson Hole speech as a coded message for a kind of recession.

On the day, heightened geopolitical tensions surrounding Russia further strengthened risk-averse sentiment. U.S. President Joe Biden, in his keynote speech at the United Nations General Assembly, sharply criticized Russian President Putin, saying, "He recklessly ignored the obligations of the non-proliferation regime and made overt nuclear threats against Europe." Putin had earlier announced a military mobilization order related to the Ukraine war and hinted at the possible use of nuclear weapons. This fueled safe-haven demand, strengthening the dollar.

Oil prices fell due to the stronger dollar and other factors. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil closed at $82.94 per barrel, down $1 (1.2%) from the previous session.

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