[New York Stock Market] Expectations Dashed by 'Hawkish' Powell... Nasdaq Plummets 3.36%

[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 2nd (local time) as Federal Reserve (Fed) Chair Jerome Powell confirmed the continuation of interest rate hikes.

On that day, the market initially rebounded after the monetary policy statement included dovish language such as "policy changes are possible if necessary," but it sharply declined following Powell's hawkish remarks during the press conference, which dampened expectations of a policy shift. The decline in tech stocks sensitive to interest rates exceeded 3%.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 32,147.76, down 505.44 points (1.55%) from the previous session. The large-cap S&P 500 index fell 96.41 points (2.50%) to 3,759.69, and the tech-heavy Nasdaq index plunged 366.05 points (3.36%) to 10,524.80.

Among individual stocks, tech stocks sensitive to interest rates showed notable declines. Tesla dropped 5.64% from the previous session. Microsoft (-3.54%), Apple (-3.73%), Amazon (-4.82%), Nvidia (-2.39%), Google Alphabet (-3.87%), and Meta (-4.89%) all fell together. Despite rising international oil prices, energy stocks such as ExxonMobil (-2.06%) and Chevron (-2.04%) also weakened following recent warnings from President Joe Biden about imposing a windfall tax.

Tupperware Brands slid 41.66% after releasing disappointing third-quarter earnings. Paramount Global also fell 12.42% after confirming underwhelming earnings, subscriber losses, and decreased advertising revenue. Airbnb dropped 13.43% despite better-than-expected earnings, as its fourth-quarter outlook was weak. AMD, which reported poor earnings after the previous day's close, also fell an additional 1.73%.

Investors closely watched the results of the Federal Open Market Committee (FOMC) regular meeting, Powell's press conference, corporate earnings, and economic indicators that day. The October ADP private employment report released in the morning showed an increase of 239,000 jobs compared to the previous month, exceeding the forecast of 195,000. This confirmed that the labor market remains robust despite consecutive aggressive tightening and recession concerns. The October wage growth rate was 7.7%, slightly down from the previous month but still at a high level.

Due to strong labor indicators and increased tightening concerns, the New York stock market started lower but showed an upward trend after 2 p.m. when the monetary policy statement was released. Following the FOMC regular meeting, the Fed announced in a statement that it would raise the federal funds rate by 0.75 percentage points from the previous 3.0?3.25% range to 3.75?4.0%. This was as expected. As inflation showed little sign of easing despite aggressive tightening, the Fed decided on an unprecedented fourth consecutive giant step.

Investors' attention was particularly drawn to the part suggesting a policy adjustment. The released statement included phrases such as "considering the cumulative effects of tightening monetary policy, the lagged impact of monetary policy on economic activity and inflation, and economic and financial developments," and "ready to adjust monetary policy appropriately if risks arise," which raised expectations for possible future policy adjustments. The S&P 500 and Nasdaq indices, which had been in a downtrend, turned upward together, and the Dow also slightly expanded its gains.

However, this mood was dampened when Powell's press conference began at 2:30 p.m. During the Q&A session, Powell said, "It is very premature to think or talk about pausing rate hikes," and added, "The terminal rate could be higher than previously anticipated."

He stated, "At some point, we can stop raising rates and hold them. That could be the next meeting," but emphasized, "However, nothing is decided at this time." He further noted, "It is hard to say that the current financial conditions are too tight," and "The central bank still has a way to go. Our decisions depend on incoming data and the impact on economic activity."

This 0.75 percentage point hike was the expected course in the market. The September Consumer Price Index (CPI) released last month showed an 8.2% year-on-year increase, raising concerns about inflation entrenchment, and recent employment data supported a strong labor market. However, the market had hoped to find hints about a slowdown after December through Powell's press conference remarks. Those hopes were dashed during the conference, causing stock prices to slide.

Jack McIntyre, portfolio manager at Brandywine Global, described Powell's remarks as "quite hawkish." He said, "There was no dovish signal that the Fed would pause," and noted that the statement's mention of considering the lagged effects of cumulative tightening suggested flexibility to slow down. He emphasized that CPI, employment data, and China's zero-COVID policy have a more significant ongoing impact globally than the signals from the Fed.

Chief Investment Strategist Youngyu Ma of BMO Wealth Management also evaluated Powell's stance as hawkish, stating, "Powell made it clear that it is better to overtighten than to risk inflation becoming entrenched." Meanwhile, Morgan Stanley Senior Advisor Jim Caron said right after the statement release that the Fed's tightening appears to be entering its final phase, marking the start of the endgame.

The Fed's decision widened the interest rate inversion gap between South Korea (3.0%) and the U.S. to a maximum of 1.0 percentage point. This is the same level as from March 2018 to February 2020, raising concerns about future foreign capital outflows and depreciation of the Korean won.

In the New York bond market that day, Treasury yields turned upward after Powell's remarks. The 10-year Treasury yield, which had fallen below 4%, surged to 4.115% after Powell's press conference and has since moderated. The 2-year yield, sensitive to monetary policy, jumped to around 4.61%.

The dollar strengthened. The Dollar Index, which measures the dollar's value against six major currencies, initially declined but rose more than 0.5% after Powell's press conference, trading around the 112 level.

International oil prices rose for the second consecutive trading day. On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude oil closed at $90.00 per barrel, up $1.63 (1.84%) from the previous session. The oil trading session ended as Powell's press conference began, and the earlier market expectations of a slowdown, dollar weakness, and declining oil inventories were analyzed as factors behind the price increase.

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