[New York Stock Market] Rises on Expectations of US Interest Rate Hold... S&P Hits Highest in Over a Year

Major indices on the U.S. New York Stock Exchange closed higher on the 12th (local time) amid growing expectations for a pause in the benchmark interest rate ahead of this week's scheduled release of the May Consumer Price Index (CPI) and the June Federal Open Market Committee (FOMC) regular meeting. The S&P 500 index, centered on large-cap stocks, surpassed the 4,300 level, marking its highest point since April last year.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,066.33, up 189.55 points (0.56%) from the previous session. The S&P 500 index rose 40.07 points (0.93%) to 4,338.93, and the tech-heavy Nasdaq index gained 202.78 points (1.53%) to close at 13,461.92.

All sectors of the S&P 500, except for energy, financials, and utilities, rose in unison. The increase in tech stocks, which are sensitive to interest rates, exceeded 2%. Tesla's stock price rose more than 2% again, extending its record-long 12 consecutive trading day rally. Following Ford, General Motors (GM) also announced a partnership with Tesla's high-speed charging station, Supercharger, which acted as positive news. Oracle, which announced earnings after the market closed, rose nearly 6% as investment banks including Wolfe Research continuously upgraded their investment ratings. Cruise company Carnival also jumped about 13% after JP Morgan upgraded its investment rating. On the other hand, Nasdaq fell about 12% on news that it would acquire software company Adenza for $10.5 billion.

Investors are awaiting the CPI and FOMC results to be released this week. Since March last year, the Fed has continued a steep tightening with 10 consecutive rate hikes, and there is a flood of forecasts that the Fed will finally take its first 'breather' by pausing rate hikes at the FOMC meeting on June 13-14. The current market scenario favors a so-called 'hawkish skip,' where the Fed skips the June rate decision and signals a possible hike as early as July.

The expected inflation rate, which reflects how much U.S. consumers anticipate prices to rise over the next year, also fell to its lowest level in two years, further supporting the pause outlook. According to the New York Federal Reserve Bank, the one-year ahead expected inflation rate released on this day was 4.1%, the lowest since May 2021. On the 13th, the U.S. May Consumer Price Index (CPI), one of the inflation indicators closely watched by the Fed, is also scheduled to be released. The market currently expects the May CPI to rise 0.1% month-over-month and 4.0% year-over-year, showing a slowdown compared to April.

Dylan Cramer, Co-Chief Investment Officer (CIO) of Sutiety, reinforced the view on CNBC that if the Fed skips a rate hike in June, it does not necessarily mean the end of the tightening cycle. Cramer said, "I am not confident that there will be no more rate hikes," adding, "I see a 50-50 chance of another hike in this cycle." He further noted, "All else being equal, the CPI report could be a short-term tailwind that allows the market to continue rising."

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in more than a 75% chance that the Fed will hold rates steady at this week's FOMC meeting, a slight increase from the previous day.

However, if the May CPI comes out stronger than expected, the possibility that the Fed will raise rates again this month instead of pausing cannot be ruled out. Previously, the central banks of Australia and Canada surprised markets by raising rates despite expectations of a pause.

Currently, Wall Street experts point out that inflationary pressures persist, especially in the service sector. David Solomon, CEO of Goldman Sachs, appeared on CNBC and diagnosed that "inflation is sticky," suggesting "there is a possibility of higher rates." Larry Summers, former U.S. Treasury Secretary who accurately predicted inflation concerns, warned at a forum that core inflation remains high and "the war against inflation is not over yet."

The Fed's monetary policy decisions are expected to be a turning point for the New York stock market, which has been on an upward trend recently. The S&P 500 index, which entered a bull market last week, surpassed the 4,300 level at the close on this day. Goldman Sachs has raised its year-end S&P 500 forecast from 4,000 to 4,500, indicating more than 5% upside potential. However, if the Fed opts for a surprise hike instead of a hawkish pause, the stock rally could collapse. There have been cases in 2000 and 2008 where the market rose more than 20% from the previous low before plunging again.

This week, besides the U.S., Europe, Taiwan, Hong Kong, and Japan will also hold monetary policy meetings. The European Central Bank (ECB) is widely expected to raise its policy rate by 0.25 percentage points from the current 3.75% at its meeting on the 15th. The Bank of Japan (BOJ), which is scheduled to decide on rates on the 16th, is expected to maintain its current policy.

In the New York bond market on the day, Treasury yields declined. The 10-year U.S. Treasury yield stood around 3.74%, and the 2-year Treasury yield, sensitive to monetary policy, was around 4.58%. The dollar index, which measures the value of the dollar against six major currencies, remained steady around 103.6.

International oil prices fell for the third consecutive trading day, breaking below the $70 per barrel level. On the New York Mercantile Exchange, the July delivery West Texas Intermediate (WTI) crude oil price closed at $67.12 per barrel, down $3.05 (4.35%) from the previous session.

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