[New York Stock Market] Surges Over 2% on Fed Slowdown Expectations... Decline in Treasury Yields

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York stock market closed higher on the 21st (local time) amid ongoing corporate earnings announcements and growing expectations that the central bank, the Federal Reserve (Fed), may slow down the pace of rate hikes starting in December.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 748.97 points (2.47%) from the previous close to finish at 31,082.56. The large-cap S&P 500 index gained 86.97 points (2.37%) to close at 3,752.75, while the tech-heavy Nasdaq index increased by 244.87 points (2.31%) to end at 10,859.72.

Among individual stocks, a rally in interest rate-sensitive tech shares stood out. Tesla rose 3.45% from the previous close. Microsoft (+2.53%), Apple (+2.71%), Amazon (+3.53%), and Alphabet (+1.16%) also showed gains. Semiconductor stocks such as Nvidia (+2.23%), Intel (+3.41%), and AMD (+1.82%) all rose together.

Energy stocks were also strong as oil prices climbed. ExxonMobil rose 1.30%, hitting a 52-week high. Additionally, financial stocks showed strength with Goldman Sachs and JP Morgan Chase jumping 4.60% and 5.25%, respectively.

There were mixed reactions based on earnings. Snap, the parent company of the U.S. social media platform Snapchat, saw its stock fall more than 28% after its third-quarter earnings released the previous day fell short of expectations. American Express (Amex) dropped 1.67% despite beating estimates and raising its annual guidance, due to a sharp increase in loan loss provisions for credit losses. Verizon also fell 4.46% as its postpaid subscriber count declined despite better-than-expected earnings.

Investors closely watched corporate earnings alongside the Fed’s tightening pace and comments from Fed officials. The Wall Street Journal (WSJ) reported that the Fed is expected to implement a giant step (a 0.75 percentage point rate hike) in November as anticipated, but will discuss slowing the pace of hikes in December, which sparked a rally in the New York stock market.

This view contrasts with the market’s previous expectation of five consecutive giant steps through December, suggesting the Fed may soon slow down. This caution stems from concerns that excessive monetary tightening could unnecessarily slow the economy. Inside the Fed, there are reportedly differing opinions on the size of future rate hikes. WSJ also mentioned that the Fed might decide on a 0.5 percentage point rate hike at the December FOMC meeting but could raise the dot plot’s rate projections to signal that it is not retreating in the fight against inflation.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, after reports of this potential slowdown, the probability of a giant step by the Fed in December fell below 50% during the day, down from over 75% the previous day. The chance of a big step (a 0.5 percentage point hike) surged from the previous day’s mid-20% range to around 47%.

In the New York bond market, the yield on the U.S. 10-year Treasury note surged to 4.337% during the morning session, marking the highest level since November 2007, before falling back to around 4.21% following the slowdown reports. The 2-year Treasury yield, sensitive to monetary policy, dropped to around 4.48%.

Mary Daly, President of the Federal Reserve Bank of San Francisco, indicated the Fed’s deep dilemma between inflation and growth, stating that while the Fed wants to slow the pace of rate hikes, it is uncertain when that will be possible. She said, "At the very least, (discussions about slowing down) should be considered at this point," but added, "However, the data is not helping." As a result, she still expects the Fed to raise rates to the 4.5-5% range and does not anticipate rate cuts in 2023. Daly does not have a voting right at this year’s FOMC meetings.

Mark Cabana, U.S. interest rate strategist at Bank of America (BoA), said, "It is hard to imagine a Fed that thinks slowing the pace of rate hikes is a good idea," pointing out that "inflation remains a problem and the labor market is strong."

Meanwhile, warnings of a recession due to aggressive tightening continue. Tesla CEO Elon Musk responded on Twitter to a netizen’s question about how long the recession might last, saying, "Just a guess, but probably until spring 2024."

The U.S. dollar weakened. The dollar index, which measures the dollar’s value against six major currencies, fell nearly 1% to the 111 level compared to the previous close.

Due to the weaker dollar, oil prices rose. On this day at the New York Mercantile Exchange, the December West Texas Intermediate (WTI) crude oil price closed at $85.05 per barrel, up 54 cents (0.64%) from the previous close.

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