[New York Stock Market] Powell Draws a Line on Rate Cuts, Markets Fall Together... Nasdaq Down 0.46%

The three major indices of the U.S. New York stock market all closed lower on the 3rd (local time), digesting the May Federal Open Market Committee (FOMC) results, which raised the benchmark interest rate by 0.25 percentage points as expected, and the remarks made by Jerome Powell, Chair of the Federal Reserve (Fed), during the press conference. Powell’s refusal to give a definitive answer on the timing of a rate freeze and his firm rejection of the possibility of rate cuts within the year dampened sentiment in the New York stock market.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 33,414.24, down 270.29 points (0.80%) from the previous session. The S&P 500, which is centered on large-cap stocks, fell 28.83 points (0.7%) to 4,090.75, and the Nasdaq, focused on technology stocks, dropped 55.18 points (0.46%) to 12,025.33.

All 11 sectors in the S&P 500 declined. Notably, energy, financials, and materials stocks saw significant drops. Est?e Lauder fell more than 17% after lowering its annual sales guidance. Starbucks slipped over 9% despite strong sales in China, after maintaining its annual guidance. AMD also recorded a decline exceeding 9%, despite better-than-expected earnings, amid concerns about its future outlook. Regional bank stocks such as PacWest Bancorp and Western Alliance Bancorp, which had rebounded in the morning session, closed down 1.98% and 4.4%, respectively.

[Image source=Reuters Yonhap News]

Investors closely watched the FOMC regular meeting results, Powell’s press conference, and private employment data released that afternoon. Despite renewed concerns about banking sector risks, the Fed announced it would raise the federal funds rate by 0.25 percentage points from the previous 4.75?5% range to 5?5.25%, as initially expected. This marked the 10th rate hike since the cycle began in March last year and the highest level in 16 years.

The market’s focus was not on the size of the hike but on whether this would be the last increase. In the subsequent press conference, Powell responded to questions about the possibility of a rate freeze in June by saying, "Today we raised the benchmark rate by 0.25 percentage points. We did not make a decision to pause today," but added, "I think it is meaningful that the phrase ‘additional policy firming’ included in the March statement was omitted this time." The released monetary policy statement deleted the phrase "some additional policy firming may be appropriate to achieve a sufficiently restrictive monetary policy stance." This suggested that rates could be frozen as early as the next meeting.

However, Powell did not explicitly confirm a freeze policy. On the contrary, he mentioned, "We are prepared to tighten more aggressively if necessary," which heightened market concerns about further tightening during the session. He drew a firmer line against the possibility of rate cuts within the year, stating, "We do not expect inflation to fall quickly," and "It will take more time, and if this forecast is correct, a pivot is not appropriate. We will not cut rates." This dashed market hopes for significant rate cuts within the year, which had been anticipated to start with a freeze in June.

Ronald Temple, Chief Market Strategist at Lazard Temple, said, "The FOMC struck an appropriate balance today between avoiding increased stress in the banking system and taming inflation," adding, "It is time to pause briefly before the tightening effects ripple through the entire economy." Ed Moya, Senior Market Analyst at OANDA, predicted, "This looks like the last hike in this cycle," noting, "The Fed is concerned that tightened credit conditions will burden economic activity and employment." He expects the Fed to keep rates steady throughout the year unless faced with a perfect storm of hotter-than-expected labor and inflation data.

The private employment data released that day indicated the labor market remains robust. According to the employment report from private employment data provider ADP, private sector employment increased by 296,000 in April, significantly exceeding the forecast of 133,000. The largest gains were seen in leisure and hospitality, education and health services, and construction. However, the banking crisis triggered by Silicon Valley Bank (SVB) led to a loss of 28,000 jobs in the financial sector. The April employment report will be released on the 5th.

The S&P Global Services Purchasing Managers’ Index (PMI) for April was finalized at 53.6, an improvement from 52.6 in the previous month. The Institute for Supply Management (ISM) reported the April Services (Non-Manufacturing) PMI at 51.9, slightly above the previous month’s 51.2.

In the New York bond market that day, U.S. Treasury yields fell amid expectations that the Fed’s rate hikes are nearing an end. The 2-year Treasury yield, sensitive to monetary policy, hovered around 3.87%, while the 10-year yield was near 3.36%. The Dollar Index, which measures the value of the dollar against six major currencies, dropped about 0.5% to 101.3. Typically, the Dollar Index tends to fall when future rate cuts are anticipated.

International oil prices fell for the third consecutive trading day amid tightening concerns. On the New York Mercantile Exchange, June delivery West Texas Intermediate (WTI) crude oil closed at $68.60 per barrel, down $3.06 (4.27%) from the previous session.

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