[New York Stock Market] Over 1% Rally on Hopes for Final Stage of US Interest Rate Hike

The three major indices of the U.S. New York stock market all closed higher on the 15th (local time), digesting the contents of the Federal Open Market Committee (FOMC) regular meeting held the previous day, which kept the base interest rate unchanged. Despite the announcement of additional tightening within the year, the market showed growing expectations that the rate hikes are nearing their end. The S&P 500 index, centered on large-cap stocks, closed higher for six consecutive trading days, continuing its longest rally since November 2021.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 428.73 points (1.26%) from the previous close to finish at 34,408.06. The S&P 500 index increased by 53.25 points (1.22%) to 4,425.84, and the Nasdaq index rose 156.34 points (1.15%) to close at 13,782.82.

All 11 sectors of the S&P 500 index rose. Telecommunications, technology, utilities, energy, financials, healthcare, and industrial stocks all rallied by more than 1%. Representative tech stocks such as Microsoft (+3.19%) and Google Alphabet (+1.15%) showed gains, while Nvidia fell 0.80%. AMD also dropped more than 2%. Tesla, which ended its record-long 13-day rally with a decline the previous day, closed slightly lower again on this day. Bank of America (BoA) issued a report predicting that Tesla's market share in the U.S. electric vehicle market will fall to around 18% by 2026.

On the other hand, Target rose more than 3% after increasing its dividend. Domino's Pizza surged over 6% after Stifel upgraded its investment rating. Mediterranean restaurant company Cava Group jumped 99% on its first day of trading following its initial public offering (IPO). Economic media CNBC called it the best IPO this year among companies valued at over $500 million. Nikola rose nearly 30%. Chinese companies listed on the U.S. stock market, such as Alibaba and JD.com, also rose more than 3% each, buoyed by the People's Bank of China's interest rate cut decision and expectations of economic stimulus.

[Image source=Reuters Yonhap News]

Investors digested the FOMC results released the previous day while closely watching major U.S. economic indicators, including retail sales. The Federal Reserve (Fed), which had raised rates consecutively 10 times since March last year, paused this time by keeping the rate at 5?5.25%. Although the dot plot raised the year-end rate forecast to 5.6%, confirming that the tightening cycle is not over yet, the stock market rallied on expectations that the tightening is nearing its end. Despite the Fed's earlier indication that two more hikes could occur in the remaining four FOMC meetings this year, some analysts argue that such a dot plot is unrealistic.

CNBC reported that after the Fed skipped a rate hike, the Dow Jones rose more than 400 points, and the S&P 500 reached a 13-month high. Dylan Cramer, co-chief investment officer at Situit, said, "The key question for the market is whether value and cyclical stocks can catch up with the rally of growth and tech stocks," adding, "If so, momentum will push the market even higher." The S&P 500, which has already entered a bull market, is currently about 23% higher than its October low.

Fed Chair Jerome Powell, at a press conference the previous day, said regarding the possibility of a rate hike in July, "No decision has been made yet," and "It will be a live meeting." However, the market largely expects a July hike. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in about a 67% chance that the Fed will raise rates by 0.25 percentage points in July.

The Wall Street Journal (WSJ) focused on Powell's correction during the press conference, where he initially mentioned "skip" but immediately corrected himself to say he would not call it a "skip," reporting this as a sign of a likely July hike. Analysts interpret this as an unconscious hint revealing his preference. Gregory Daco, chief economist at EY, interpreted this as "meaning a July rate hike is almost certain."

Unlike the Fed, which skipped a rate decision, the European Central Bank (ECB) raised its policy rate by 0.25 percentage points, marking its eighth consecutive hike. ECB President Christine Lagarde said, "There is a very high chance of another rate hike in July," adding, "We have no intention of taking a break." The ECB also plans to reduce the scale of asset purchases starting in July.

The U.S. economic indicators released on this day showed mixed results. U.S. retail sales in May increased by 0.3% month-over-month, showing stronger-than-expected performance despite inflation and aggressive tightening. This surprised experts' forecasts compiled by The Wall Street Journal (WSJ) and Bloomberg, which predicted a 0.2% decline. Core retail sales, excluding gasoline and automobiles, also rose 0.2% from the previous month. Retail sales are considered a pillar accounting for two-thirds of the U.S. real economy and a comprehensive indicator of economic health. Local media suggested that the current figures indicate the economy is far from recession. On the other hand, U.S. industrial production in May decreased by 0.2% month-over-month, marking the first decline this year. Import prices in May also fell 0.6% from the previous month, returning to a downward trend after one month.

The weekly unemployment claims released on the same day exceeded expectations, reinforcing signals of labor market weakening. According to the U.S. Department of Labor, new unemployment claims last week were 262,000, unchanged from the previous week. This is the highest level since October 2021 and exceeds Bloomberg's forecast of 245,000. Continued claims for unemployment benefits, which require at least two weeks of filing, increased by 20,000 to 1,775,000. However, this remains historically low.

Additionally, the New York Empire State Manufacturing Index for June recorded 6.6, significantly exceeding expectations and turning positive. The market forecast was -16. The Philadelphia Federal Reserve Bank's manufacturing activity index for June was also -13.7, slightly better than the market forecast of -14.8. These indices use zero as the baseline to distinguish expansion from contraction.

In the New York bond market, Treasury yields declined. The 10-year U.S. Treasury yield hovered around 3.71%, and the 2-year Treasury yield, sensitive to monetary policy, was around 4.64%. The dollar index, which shows the value of the dollar against six major currencies, fell more than 0.8% from the previous close to 102.1. The volatility index (VIX), known as Wall Street's fear gauge, rose more than 4% from the previous close to 14.4, though still well below the long-term average of 20.

International oil prices recovered to the $70 per barrel level. On the New York Mercantile Exchange, the July delivery price of West Texas Intermediate (WTI) crude oil rose $2.35 (3.44%) from the previous close to finish at $70.62 per barrel.

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