New York Stock Market Starts Lower Across the Board on First Trading Day After Holiday Closure

by Cho Seulkina

Published 21 Jun.2023 00:01(KST)

The three major indices of the U.S. New York stock market started the first trading day of the week on the 20th (local time) after the Juneteenth holiday with a downward trend. While awaiting Federal Reserve (Fed) Chairman Jerome Powell's semiannual congressional report this week, disappointment over the earlier-than-expected cut in China's loan interest rates was also confirmed.

As of 10:35 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was down 366.78 points (1.07%) from the previous close, trading around the 33,932 level. The large-cap-focused S&P 500 index fell 38.95 points (0.88%) to the 4,370 level, and the tech-heavy Nasdaq index dropped 113.38 points (0.83%) to 13,576.

Currently, all 11 sectors in the S&P 500 are in decline. In particular, energy-related stocks have fallen more than 2%. Financials, industrials, materials, real estate, technology, and communication stocks are also down around 1%. Alibaba, listed on the New York Stock Exchange, is trading more than 4.5% lower following news of a management change. JD.com is down 7%, Tencent Music has fallen about 5%, and most China-related stocks showed weakness. TAL Education and Gaotu also dropped around 10%. The limited cut in China's interest rates, which fell short of initial expectations, along with Goldman Sachs lowering China's growth forecast for this year to 5.4%, appears to have had an impact. Biotech company Dice Therapeutics surged more than 37% on news that Eli Lilly will acquire it for $2.4 billion.

[Image source=Reuters Yonhap News]

Investors are closely watching this week's Fed officials' remarks along with the impact of China's earlier 0.1 percentage point cut in the loan prime rate (LPR). China's interest rate cut, aimed at stimulating the economy, fell short of expectations, leading both the Chinese and Hong Kong stock markets to close lower. This sentiment seems to be extending to the New York stock market.

Chairman Powell is scheduled to deliver his semiannual congressional testimony to the House Financial Services Committee on the 21st and the Senate Banking Committee on the 22nd. Last week, the Fed kept the benchmark interest rate unchanged at the June Federal Open Market Committee (FOMC) meeting but hinted at the possibility of two more rate hikes this year. The key question is whether Powell will provide hints regarding a rate hike in July or the possibility of rate cuts within the year.

The market largely expects a "baby step" (a 0.25 percentage point increase in the benchmark rate). According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently reflects nearly a 72% probability that the Fed will raise rates by 0.25 percentage points in July.

This week, speeches are also expected from John Williams, President of the New York Federal Reserve Bank; Loretta Mester, President of the Cleveland Fed; James Bullard, President of the St. Louis Fed; and Austan Goolsbee, President of the Chicago Fed. These will provide various insights into the Fed's views on monetary policy direction, growth, and inflation since the last FOMC meeting where rates were held steady. The Bank of England (BOE) and the Central Bank of Brazil will also make interest rate decisions this week.

The U.S. Commerce Department reported that housing starts in May surged 21.7% month-over-month to an annualized 1.63 million units. This was a surprising increase that defied experts' expectations of a 0.8% decline (according to a Wall Street Journal survey). Last month's housing starts were the highest in 13 months since April of last year. Compared to the previous month and a year ago, starts increased by 5.7%, marking the first increase in nearly a year.

Building permits for new housing, a leading indicator of the future housing market, also rose 5.2% month-over-month on a seasonally adjusted basis to 1.491 million units. This significantly exceeded the market expectation of a 0.3% increase.

In the New York bond market, Treasury yields are falling. Awaiting Fed officials' remarks this week, the 10-year Treasury yield dropped to around 3.7%. The 2-year Treasury yield, sensitive to monetary policy, also fell to about 4.67%. The dollar index, which measures the value of the U.S. dollar against six major currencies, rose more than 0.2% to 102.7. The Volatility Index (VIX), known as Wall Street's fear gauge, increased more than 2% to 14.5.

Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley, said in an investor memo that "the market has expanded due to participants' caution about missing a potential bull market." Adam Crisafulli, an analyst at Vital Knowledge, mentioned to CNBC that although the S&P 500 rose 2.6% last week, "the market has become more vulnerable to several negative factors and headwinds hidden beneath market sentiment," adding that "(future) gains will be very limited."