[New York Stock Market] Decline Due to Hawkish Fed and Big Tech Layoffs... Nasdaq Down 1.24%

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market all closed lower on the 18th (local time). The New York stock market, which started higher due to easing concerns over Federal Reserve (Fed) tightening amid slowing producer prices, turned to a downward trend following hawkish remarks from Fed officials. Announcements of layoffs by big tech companies including Microsoft (MS), and news that consumer spending during the year-end shopping season worsened more than expected, further heightened recession fears and dampened investor sentiment that day.

[Image source=Reuters Yonhap News]

On that day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,296.96, down 613.89 points (1.81%) from the previous session. The large-cap focused S&P 500 index fell 62.11 points (1.56%) to 3,928.86, and the tech-heavy Nasdaq index dropped 138.10 points (1.24%) to 10,957.01.

All sectors within the S&P 500 declined. MS officially announced plans to cut about 10,000 jobs and closed down 1.89% from the previous session. Leading tech stocks Tesla fell 2.06%, Nvidia 1.84%, and Apple 0.55%. Despite Mizuho upgrading its investment rating, Oatly Group dropped more than 4%. Coinbase fell 7.26% after announcing it would cease operations in Japan. United Airlines, which reported earnings exceeding expectations after the previous day's close, declined 4.57%.

Investors closely watched economic indicators released that day, including December's Producer Price Index (PPI), December retail sales, corporate earnings, remarks from Fed officials, and the Fed's Beige Book report containing economic assessments.

The PPI for December of last year, released before market open, rose 6.2% year-over-year, marking the lowest increase in nine months. This figure was more than 1 percentage point lower than the previous month's increase of 7.3%. The data reaffirmed that U.S. inflation has been gradually easing. The December PPI also fell 0.5% month-over-month, the largest decline since April 2020, early in the pandemic.

This eased inflation concerns and bolstered market expectations that the Fed would slow the pace of rate hikes at the Federal Open Market Committee (FOMC) regular meeting scheduled for January 31 to February 1. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market priced in over a 93% probability of a 0.25 percentage point rate hike (a baby step) in February. The Fed Beige Book, a key economic assessment used at the February FOMC, also included content indicating that inflation in the U.S. is rising at a moderate or normal pace.

However, the market sentiment reversed due to hawkish comments from Fed officials. James Bullard, President of the Federal Reserve Bank of St. Louis, said in an interview that "to reach a restrictive level, interest rates need to be at least above 5%" and that "a 0.5 percentage point hike at this meeting is appropriate." He predicted that inflation would remain high through the end of this year. Loretta Mester, President of the Cleveland Fed, also supported further tightening, stating that although inflation has recently eased, "under-tightening could pose greater risks."

Recession concerns were also highlighted again. December retail sales, released the same day, fell 1.1% month-over-month, marking the largest drop in a year. This decline exceeded Wall Street experts' expectations of -0.9%. Typically, November and December are considered peak shopping seasons, but U.S. retail sales declined by over 1% for two consecutive months during this period. The Wall Street Journal (WSJ) reported, "U.S. consumers reduced spending during the year-end shopping season due to rising interest rates, persistently high inflation, and recession fears," adding that "this signals a slowing U.S. economy." Industrial production for December, also released that day, fell 0.7% month-over-month, significantly worse than the market forecast of -0.1%.

Ma Young-yu, Chief Investment Strategist at BMO Asset Management, said, "The year started very well, but now it is earnings season, and data such as retail sales and the New York manufacturing index released the previous day are weakening. The FOMC is also approaching," suggesting that all factors require caution in the short term.

Additionally, a cold wave of layoffs centered on big tech continues, with MS announcing plans to cut 10,000 employees by March. Satya Nadella, MS CEO, officially announced on his blog that "we are in an era of significant change," and that 10,000 employees, about 5% of the total workforce, will be laid off. Amazon also began notifying employees of layoffs that day. As previously announced earlier this month, mass layoffs of about 18,000 employees, mainly in HR and retail sectors, have begun. This is the largest scale in Amazon's history.

CNBC reported, "Companies that led the bull market over the past decade are entering a new environment, and layoffs, especially in the tech sector, are increasing," adding that "based on company statements and media reports, over 60,000 layoffs have occurred in the past year." Concerns have also been raised that additional restructuring announcements, especially among big tech companies, may continue ahead of the earnings season.

In the New York bond market that day, the 10-year U.S. Treasury yield fell to around 3.36% early in the session as tightening concerns eased. It later recovered some losses due to hawkish Fed remarks but remained lower compared to the previous session. The 2-year Treasury yield, sensitive to monetary policy, also fell to around 4.08%. Currently, the bond market continues to experience an inverted yield curve, where long-term yields are below short-term yields, typically considered a recession indicator.

Corporate earnings disclosures are also ongoing. According to Refinitiv data, among 33 companies listed on the S&P 500 that have reported earnings, 67% posted net profits exceeding expectations.

International oil prices turned lower after nine trading days amid expectations of China's economic reopening and ongoing global recession concerns. At the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) crude oil for February delivery closed at $79.48 per barrel, down 70 cents (0.87%) from the previous session.

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