[New York Stock Market] Broad Decline Amid Tightening Concerns... Nasdaq Down 0.96%

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York stock market closed lower on the 19th (local time) as concerns spread that the Federal Reserve (Fed), the central bank, would continue to raise interest rates despite signs of slowing inflation.

[Image source=Reuters Yonhap News]

On that day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,044.56, down 252.40 points (0.76%) from the previous session. The S&P 500, centered on large-cap stocks, fell 30.01 points (0.76%) to 3,898.85, and the tech-heavy Nasdaq dropped 104.74 points (0.96%) to 10,852.27. The Dow and S&P 500 continued their decline for the third consecutive trading day.

By sector, all sectors within the S&P 500 declined except for energy, healthcare, and communication stocks. Roblox fell 6.57% after Morgan Stanley downgraded its investment rating. Norwegian Cruise Line dropped 4.83% after forecasting net losses not only for Q1 this year but also for the entire previous year. Alcoa and Northern Trust declined 7.35% and 8.6%, respectively, due to poor earnings. Netflix and Truist Financial are scheduled to release earnings after the market close that day.

Investors closely watched remarks from Fed officials and Wall Street executives, concerns about recession due to Fed tightening, major corporate earnings reports, and economic indicators.

Ahead of the Federal Open Market Committee (FOMC) regular meeting scheduled for January 31 to February 1, Fed officials have been delivering hawkish comments daily. Fed Vice Chair Lael Brainard attended an event at the University of Chicago Booth School of Business and confirmed that despite recent signs of inflation slowing, the Fed’s tightening monetary policy stance would not change. She said the Fed would "maintain the current course" until more signals confirm inflation is closer to the 2% target. She added, "Despite recent easing, inflation remains high," and "tightening policies need to be sufficiently restrictive."

On the same day, Susan Collins, President of the Federal Reserve Bank of Boston, said, "I expect to slow the pace of rate hikes for a while based on data," but added, "Additional rate hikes are needed to slightly above 5%. After that, the level should be maintained for some time." Regarding price stability, she mentioned, "There is much to be done," but expressed optimism that inflation could be eased without a severe recession.

These remarks drew more attention following comments by James Bullard, President of the Federal Reserve Bank of St. Louis, and Loretta Mester, President of the Cleveland Fed, who suggested a terminal rate above 5.25% despite easing inflation indicators. This effectively dampened market expectations for a pivot in Fed policy, preventing investors from misinterpreting recent inflation data. Currently, the U.S. benchmark interest rate stands at 4.25?4.5%, and the Fed’s December dot plot projected a year-end rate of 5.0?5.25% (median 5.1%) for this year.

On Wall Street, comments about inflation and the Fed’s actions continued. Jamie Dimon, chairman of JP Morgan Chase, known as the "Emperor of Wall Street," appeared on CNBC’s Squawk Box and said, "Rates will rise above 5%," because he believes core inflation will not disappear quickly. Dimon also predicted that if the U.S. experiences a mild recession, rates could exceed 6%. He pointed out that recent signs of easing inflation are due to temporary factors such as falling oil prices and China’s economic slowdown.

On the other hand, James Gorman, CEO of Morgan Stanley, stated there is no doubt that inflation has peaked. He expects the Fed to raise rates by 0.25 percentage points at the February and March FOMC meetings and then pause further hikes, as the market anticipates. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures market reflects over a 96% probability of a 0.25 percentage point hike at the February FOMC.

Concerns about recession also persist. Following retail sales data that fell by the largest margin in a year the previous day, real estate market data released that day added to recession worries. According to the U.S. Department of Commerce, new housing starts in December last year decreased 1.4% month-over-month to an annual rate of 1.382 million units, marking a four-month decline. Compared to the same period last year, it dropped 21.8%. Additionally, annual new housing starts for last year turned downward for the first time since 2009.

However, despite recession concerns and consecutive corporate layoffs, weekly U.S. jobless claims fell to their lowest level in four months. According to the U.S. Department of Labor, new unemployment claims for the week of January 8?14 totaled 190,000, down 15,000 from the previous week, the lowest since September last year. This also beat expert forecasts of 214,000. Ed Moya, senior market analyst at OANDA, noted, "Despite large-scale layoffs since the pandemic, the labor market remains hot," and pointed out, "For the Fed to stop raising rates, the overheated labor market must cool down first."

In the New York bond market, Treasury yields rose amid increased tightening concerns. The benchmark 10-year Treasury yield hovered around 3.4%. The 2-year yield, sensitive to monetary policy, surpassed the 4.1% level. The bond market continues to see an inverted yield curve where long-term yields fall below short-term yields, typically regarded as a recession signal. David Donabedian, Chief Investment Officer at CIBC Private Wealth, assessed that "there is over a 50% chance of a mild recession in the U.S. and globally."

The dollar declined slightly. The Dollar Index, which measures the dollar’s value against six major currencies, fell to the 102 level.

Additionally, the U.S. federal government reached its debt ceiling on that day, prompting the Treasury Department to announce special measures. This raised concerns that potential default risks could impact economic growth and the bond market. Although the special measures bought time for negotiations in Congress, the standoff between the White House and Republicans over raising the debt ceiling remains intense, dimming prospects. In 2011, a similar congressional deadlock led to a U.S. credit rating downgrade and financial market turmoil.

Regarding this, Brad McMillan, Chief Investment Officer at Commonwealth Financial Network, said, "Even if Congress fails to reach an agreement, options other than default exist," expressing optimism that the issue will be resolved before the June deadline.

Oil prices rose amid expectations for crude demand ahead of the Chinese Lunar New Year. On the New York Mercantile Exchange, West Texas Intermediate (WTI) crude for February delivery closed at $80.33 per barrel, up 85 cents (1.07%) from the previous session. This is the highest closing price since December 1.

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