[New York Stock Market] Market Adjustment Ahead of Powell's Speech, Broad Decline... Dow Down 0.72%

The three major indices of the U.S. New York stock market all closed lower on the 20th (local time), the first trading day of the week following the Juneteenth holiday, amid a correction phase. Investor sentiment was negatively affected by disappointment over the limited cut in China's loan interest rates as well as anticipation of Federal Reserve (Fed) Chair Jerome Powell's semiannual congressional testimony scheduled for this week.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 245.25 points (0.72%) from the previous close to finish at 34,053.87. The large-cap focused S&P 500 index dropped 20.88 points (0.47%) to 4,388.71, and the tech-heavy Nasdaq index declined 22.28 points (0.16%) to close at 13,667.29. The New York stock market was closed on Monday due to the Juneteenth holiday.

Among the S&P 500 sectors, 10 out of 11 sectors excluding discretionary consumer goods showed weakness. In particular, energy-related stocks fell more than 2% alongside the decline in oil prices. Chevron dropped 2.28%, and ExxonMobil fell 2.29%. China-related stocks also underperformed. Alibaba, listed on the New York Stock Exchange, plunged more than 4.5% following news of management changes. JD.com and Tencent Music also recorded declines in the 6% range. The limited cut in China's interest rates, which fell short of initial expectations, and Goldman Sachs lowering China's growth forecast for this year to 5.4% were interpreted as factors impacting the market.

Electric vehicle company Tesla surged 5.34% after electric vehicle makers Rivian joined GM and Ford in agreeing to use Tesla's charging network, the ‘Supercharger.’ Biotech firm Dice Therapeutics soared more than 37% on news that Eli Lilly would acquire it for $2.4 billion. Nike fell 3.57% after UBS issued a negative outlook on its 2024 earnings guidance and lowered its target price. Boeing, which unveiled new orders at the Paris Air Show, closed down 3.46%.

[Image source=Reuters Yonhap News]

Investors, taking a breather after the recent sustained rally, are closely watching the impact of China's 0.1 percentage point cut in the loan prime rate (LPR) while awaiting remarks from Fed officials including Chair Powell this week. Earlier, China's interest rate cut, aimed at economic stimulus, fell short of expectations, leading to declines in both the Chinese and Hong Kong stock markets, a trend that extended to the New York stock market. Steven Roach of Yale University appeared on CNBC and pointed out that China's short-term stimulus measures will not resolve long-term economic headwinds.

Chair Powell is scheduled to deliver semiannual congressional testimony before 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 additional hikes within the year. The key question is whether Chair Powell will provide hints regarding a rate hike in July or the possibility of rate cuts later this year.

Currently, the market favors 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 prices in nearly a 77% chance 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 remarks are expected to provide multifaceted insights into the direction of monetary policy, growth, and inflation assessments within the Fed since the last FOMC meeting, where rates were held steady. The Bank of England (BOE) and the Central Bank of Brazil will also make rate decisions this week. The International Monetary Fund (IMF) evaluated that the Bank of Canada’s recent resumption of rate hikes due to inflation concerns was appropriate.

The U.S. Commerce Department reported that housing starts in May surged 21.7% month-over-month to 1.63 million units (annualized). This was a surprising increase that overturned experts’ forecasts (compiled by The Wall Street Journal) expecting a 0.8% decline from the previous month. Last month’s housing starts were the highest in 13 months since April of last year. Compared to both the previous month and a year ago, housing starts increased by 5.7%, marking the first rise in nearly a year. Building permits for new housing, a leading indicator of future construction activity, also rose 5.2% month-over-month on a seasonally adjusted basis to 1.491 million units, significantly exceeding the market expectation of a 0.3% increase.

In the New York bond market, Treasury yields declined. Awaiting Fed officials’ remarks this week, the 10-year Treasury yield fell to around 3.71%. The 2-year Treasury yield, which is sensitive to monetary policy, also dropped to about 4.68%. The dollar index, which measures the value of the U.S. dollar against six major currencies, remained steady around 102.56. The Volatility Index (VIX), known as Wall Street’s fear gauge, fell nearly 2% from the previous close to 13.9.

Oil prices declined. On the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) crude for July delivery fell $1.28 (1.78%) from the previous close to settle at $70.50 per barrel.

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