[New York Stock Market] Dollar and Treasury Yield Rally Amid Tightening Aftermath... Nasdaq Down 1.37%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed lower on the 22nd (local time) as concerns over an economic recession spread due to simultaneous tightening by the Federal Reserve (Fed) and other major countries. Expectations that the Fed's high-intensity tightening will continue for some time gained traction, causing government bond yields to surge. The dollar also strengthened.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 30,076.68, down 107.10 points (0.35%) from the previous session. The S&P 500, which focuses on large-cap stocks, fell 31.94 points (0.84%) to 3,757.99, and the tech-heavy Nasdaq dropped 153.39 points (1.37%) to close at 11,066.81.

By sector, technology and semiconductor stocks showed weakness amid concerns about economic slowdown. Industries highly dependent on the economy and discretionary consumer goods sectors also underperformed. Tesla, a representative tech stock, closed down 4.06% from the previous session. Nvidia and AMD slid 5.28% and 6.69%, respectively. Travel stocks such as United Airlines (-4.62%) and American Airlines (-3.85%) also declined. Caesars Entertainment plummeted by a staggering 9.44%.

On the other hand, Cano Health surged over 32% following reports that acquisition negotiations were nearing completion. Pharmaceutical company Eli Lilly rose 4.85% after UBS upgraded its outlook. FedEx, which had previously warned of a recession, revealed cost-cutting measures including price increases and closed up 0.84%.

The market focused on the interest rate hikes and future tightening moves by the Fed and other major central banks. Following the release of the monetary policy statement, dot plot, and economic outlook at the Federal Open Market Committee (FOMC) regular meeting the previous day, expectations of prolonged high interest rates led to continued declines in stock prices. The Fed's dot plot indicated a median interest rate of 4.4% by the end of this year and projected a rise to 4.6% next year.

Saira Malik, Chief Investment Officer at Nuveen, described the previous day's FOMC as "a pill hard for the market to swallow." Cathie Wood, well known in Korea as the so-called ‘Donnamu Unni’ (Money Tree Sister), criticized the Fed's policy decision, saying the most disappointing aspect was the "unanimity," pointing out that "the Fed is making decisions based solely on lagging indicators and inferences."

As the global tightening trend accelerates, concerns about a worldwide economic recession are growing. Following the Fed, the Bank of England (BOE) raised its benchmark interest rate by 0.5 percentage points from 1.75% to 2.25% at its Monetary Policy Committee (MPC) meeting on the same day. The Swiss National Bank (SNB) also ended Europe's negative interest rate era by raising its benchmark rate by 0.75 percentage points. The Norwegian central bank raised its benchmark rate by 0.50 percentage points from 1.75% to 2.25%. In Asian markets, Hong Kong, the Philippines, Taiwan, and Indonesia also implemented rate hikes.

Ed Moya of OANDA expressed concern, saying, "The Fed has opened the door for most of the world to continue aggressive rate hikes," adding, "This will lead to a global economic recession." Keith Lerner of Truist acknowledged that many economists expect a mild recession, saying, "There is some merit to that," but warned, "We should not ignore that the uncertainty of Fed policy could prolong the recession."

The U.S. Conference Board Leading Economic Index, released on this day, continued its decline for six consecutive months since March. The August U.S. leading economic index fell 0.3% from the previous month to 116.2. Although initial jobless claims in the U.S. increased for the first time in six weeks, they remained below market expectations. According to the U.S. Department of Labor, weekly new unemployment insurance claims for the week ending the 17th rose by 5,000 to 213,000 compared to the previous week.

In the New York bond market, government bond yields surged. Following three consecutive giant steps by the Fed, major central banks including those of the UK and Switzerland simultaneously raised rates, intensifying recession concerns. The 10-year Treasury yield rose to as high as 3.716% during the session. The 2-year yield, sensitive to monetary policy, hovered around 4.11%.

The inversion spread between the 2-year and 10-year yields widened further, typically seen as a precursor to recession. At one point during the session, the spread widened to 56.8 basis points (1bp=0.01 percentage points). Keith Lerner of Truist said, "The persistent yield curve inversion is putting pressure on growth stocks and heightening fears of a recession," adding, "If rates continue to rise amid an already slowing economy, the likelihood of a recession increases." Evercore ISI lowered its year-end S&P 500 forecast from 4,200 to 3,975 on this day.

The dollar also remained strong. The Dollar Index, which measures the value of the dollar against six major currencies, rose slightly to around 111.24.

Oil prices rose for the first time in three trading days due to supply concerns. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil closed at $83.49 per barrel, up 55 cents (0.66%) from the previous day.

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