[New York Stock Market] Powell Hints at 'Two Consecutive Rate Hikes'... Dow and S&P Close Lower

The three major indices of the U.S. New York stock market closed mixed near the flat line on the 28th (local time), digesting remarks from Federal Reserve (Fed) Chair Jerome Powell, who signaled additional tightening. The possibility of consecutive rate hikes at the July and September meetings was not ruled out, increasing market caution. Semiconductor stocks, including Nvidia, also showed weakness amid reports that the U.S. may impose additional export restrictions on semiconductors to China.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 74.08 points (0.22%) from the previous close to finish at 33,852.66. The large-cap focused S&P 500 index recorded a decline of 1.55 points (0.04%) to 4,376.86. The tech-heavy Nasdaq index rose 36.08 points (0.27%) to close at 13,591.75. Although the Nasdaq started the day lower, it turned to a slight gain supported by bargain buying led by some big tech stocks despite Powell's hawkish remarks and semiconductor stock weakness. Mark Hacket of Nationwide predicted, "Volatility may continue until the weekend due to quarter-end positioning."

In the S&P 500, all sectors except energy, consumer discretionary, real estate, and communication services declined. Major semiconductor stocks closed lower following a Wall Street Journal (WSJ) report that the U.S. plans to block exports of not only advanced AI semiconductors but also low-performance semiconductors to China. Nvidia, leading the AI semiconductor market, fell 1.81% from the previous close. AMD dropped 0.19%. Intel and Qualcomm also declined by 1.55% and 1.85%, respectively.

General Mills fell more than 5% as its quarterly sales missed expectations. Pinterest jumped over 6% after Wells Fargo upgraded its investment rating. Apple closed slightly higher after Wedbush set a target price of $220. Apple's stock price is on the verge of surpassing a $3 trillion market capitalization. Additionally, ahead of the Fed's bank stress test results announcement, major bank stocks such as JPMorgan, Bank of America (BoA), and Wells Fargo showed slight declines.

[Image source=Reuters Yonhap News]

Investors focused on Powell's remarks at the European Central Bank (ECB) Sintra Forum and the Biden administration's potential semiconductor export restrictions to China. At the forum, Powell confirmed the additional tightening policy, stating, "More restrictions are coming," and "This is driven by a very strong labor market." When asked whether rate hikes could occur by skipping a meeting again, he replied, "I would not rule out consecutive moves (rate hikes) at meetings." This means the possibility of consecutive hikes in July and September is not excluded. This differs from the market's expectation that the Fed would alternate between hikes and pauses to assess the impact even if it raises rates twice.

These hawkish remarks align with Powell's support for a new dot plot indicating the possibility of two rate hikes within the year, presented at last week's congressional hearing. At the July 14 FOMC meeting, the Fed held rates steady but raised the year-end rate forecast (median) on the dot plot from 5.1% to 5.6%, signaling the possibility of two baby steps (0.25 percentage point increases) within the year.

Not only Powell but also ECB President Christine Lagarde and Bank of England (BOE) Governor Andrew Bailey expressed support for tightening due to inflation at the forum. President Lagarde stated bluntly, "We are not currently considering stopping rate hikes." Governor Bailey also warned that if fundamental inflationary pressures persist due to an overheated labor market, additional rate hikes will be inevitable. He also described the BOE's surprise big step (0.5 percentage point rate hike) as a "justified action."

Kim Forrest of Bokeh Capital Partners said, "We are digesting the views of the four central bank governors attending today's forum," adding, "The message that higher rates must be maintained for a longer period is acting as today's ceiling." Peter Cardillo, chief market economist at Spartan Capital Securities, noted, "Powell did not change his tone, like the other panelists," emphasizing that today's remarks were a repetition of previous statements. On the 29th, Powell will have a dialogue with Hern?ndez de Cos, Governor of the Bank of Spain, in Madrid. The market is expected to seek more hints about the U.S. economy, inflation, and monetary policy direction from Powell's additional remarks.

Later in the week, key economic indicators that could influence Fed monetary policy will be released. The final U.S. first-quarter Gross Domestic Product (GDP) will be announced on the 29th, and the May U.S. Personal Consumption Expenditures (PCE) price index will be released on the 30th. The market estimates that the May core PCE will rise 4.6% year-over-year and 0.3% month-over-month, a slight slowdown from the previous month. If inflation indicators show stronger-than-expected levels, tightening pressure around the Fed could increase.

Currently, the market consensus is that the Fed will resume rate hikes at the July FOMC meeting. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds (FF) futures markets are pricing in nearly an 80% chance of a baby step in July. This is up from the mid-70% range the previous day following Powell's remarks. However, unlike the Fed's dot plot signaling two hikes this year, the rate futures market still favors a scenario of one hike followed by a prolonged pause.

The U.S. May goods trade deficit released on the day was $91.1 billion, down 6.1% year-over-year. Imports decreased by 0.6%, and exports fell by 2.7%. Additionally, the Fed will release stress test results for U.S. banks. Experts expect most banks to pass.

In the New York bond market, Treasury yields declined. The 10-year Treasury yield hovered around 3.71%, and the 2-year Treasury yield, sensitive to monetary policy, was around 4.71%. The dollar index, which measures the dollar's value against six major currencies, rose more than 0.4% from the previous close to 102.9.

Oil prices rose. On the New York Mercantile Exchange, August delivery West Texas Intermediate (WTI) crude oil closed at $69.56 per barrel, up $1.86 (2.75%) from the previous close.

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