[New York Stock Market] Relief on JP Morgan... Slight Decline Ahead of FOMC

The three major indices of the U.S. New York stock market closed slightly lower on the 1st (local time) amid ongoing concerns about tightening ahead of the May Federal Open Market Committee (FOMC) meeting this week, digesting news such as JP Morgan Chase's acquisition of First Republic Bank. Jamie Dimon, chairman of JP Morgan, known as the "Emperor of Wall Street," evaluated that the banking crisis is almost over with this acquisition.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,051.70, down 46.46 points (0.14%) from the previous session. The S&P 500, focused on large-cap stocks, closed 1.61 points (0.04%) lower, and the tech-heavy Nasdaq closed at 12,212.60, down 13.99 points (0.11%).

Within the S&P 500, energy, real estate, discretionary consumer goods, and financial stocks declined, while healthcare, industrial, technology, and utility stocks also fell. JP Morgan Chase rose 2.14% following the announcement of the First Republic acquisition. First Republic was not traded due to bank closure. The SPDR S&P Regional Banking ETF fell nearly 3%. SoFi Technologies dropped more than 12% despite beating quarterly earnings expectations. General Motors rose over 1.3% after Morgan Stanley upgraded its investment rating. Apple, which is set to release earnings this week, showed a slight decline. Leading tech stocks Tesla and Amazon fell 1.51% and 3.22%, respectively.

[Image source=Reuters Yonhap News]

Investors focused on the early morning announcement of JP Morgan's acquisition of First Republic. Earlier, the California Department of Financial Protection and Innovation closed First Republic and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver to proceed with the sale. Accordingly, JP Morgan will assume all deposits of First Republic and purchase most of its assets. The 84 branches of First Republic located in eight U.S. states also reopened as JP Morgan Chase bank branches starting from the 1st.

This marks the second-largest bank failure in U.S. history and the fourth bank failure this year following Silvergate, SVB, and Signature Bank. First Republic had been struggling with crisis rumors due to bank runs and sharp stock declines following the Silicon Valley Bank (SVB) incident.

Chairman Dimon stated in a subsequent press release, "The government encouraged us and other companies to step up, and we did," explaining, "Through our financial soundness, capabilities, and business model, we were able to conduct a bidding process to execute the deal in a way that minimizes the cost to the deposit insurance fund." In a call with analysts that morning, he added, "There may be more issues with smaller banks, but this acquisition has resolved almost all problems," and assessed, "This part of the crisis is over."

The market also evaluated that the immediate crisis at First Republic has been prevented from spreading across the banking sector. Steven Kelly, senior researcher at Yale School of Management, said, "This is the final stage of the initial panic. First Republic's problems started because of SVB and Signature Bank," adding, "This is not like 2008 when investors focused on the next bank to falter after one collapsed."

The FOMC, which decides the U.S. benchmark interest rate, will be held on the 2nd and 3rd. With a baby step (0.25 percentage point rate hike) almost certain, market attention is focused on the timing of a future pause.

According to the CME FedWatch tool, the federal funds futures market currently reflects over a 90% probability that the Fed will take a baby step (0.25 percentage point hike) at the May FOMC. This would raise the U.S. benchmark interest rate to 5.00-5.25%, the highest in 16 years.

The key is future policy moves. According to the dot plot released in March, a majority of the 18 FOMC members indicated a pause after one more hike. This baby step could be the last rate increase. The Wall Street Journal (WSJ) reported, "Officials view communication about future policy actions as potentially as important as the rate decision itself," adding, "It is likely that the policy statement released Wednesday and Fed Chair Jerome Powell's press conference will subtly adjust signals to keep options open."

Additionally, Fed officials' assessments of the banking sector situation related to the First Republic acquisition and credit tightening due to banking sector instability, announced on the same day, are also attracting attention.

Eric Rosengren, former president of the Federal Reserve Bank of Boston, recently attended a Harvard Business School event and stated that if he had a vote at the FOMC, he would vote against a rate hike at this meeting. The previous day, Mike Wilson, Morgan Stanley's chief investment officer, evaluated that if the Fed dampens market expectations for rate cuts in the second half of the year, it could be negative for the market.

Meanwhile, this week will also see the release of major U.S. employment indicators, including the March Job Openings and Labor Turnover Survey (JOLTs), April ADP Employment Report, and April Nonfarm Payrolls. Following the Fed, the European Central Bank (ECB) will hold its monetary policy meeting on the 4th. While a baby step is widely expected, some speculate a big step (0.5 percentage point hike). The Reserve Bank of Australia and Norges Bank also face rate decisions this week. Major companies such as Apple, Starbucks, Qualcomm, and AMD will release earnings. Apple's earnings per share are estimated to decline 6% year-over-year to $1.43.

In the New York bond market, U.S. Treasury yields rose ahead of the FOMC. The 2-year Treasury yield, sensitive to monetary policy, hovered around 4.14%, and the 10-year yield around 3.58%. The dollar index, which measures the dollar's value against six major currencies, rose 0.4% to 102.1.

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), attended the Milken Institute Global Conference held at the Beverly Hilton Hotel in LA and warned that "financial vulnerabilities have been exposed during the rapid transition from a low-interest-rate era to a high-interest-rate era," urging the banking sector to remain vigilant against additional risks. She forecasted that growth would slow to 2.8% this year and remain around 3% over the next five years. She expressed concern that cumulative monetary tightening policies, Russia's invasion of Ukraine, and added financial stress could increase downside risks.

International oil prices fell due to weak Chinese economic indicators and tightening concerns ahead of the FOMC. At the New York Mercantile Exchange, June delivery West Texas Intermediate (WTI) crude oil closed at $75.66 per barrel, down $1.12 (1.46%) from the previous session.

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