[New York Stock Market] Tightening Caution Amid Strong US Economic Indicators... Only Nasdaq Slightly Weakening

The three major indices of the U.S. New York stock market closed mixed on the 29th (local time), one day before the end of the first half trading session. With the confirmed Q1 economic growth rate revised upward to 2%, confirming that the U.S. economy is stronger than initially estimated, Federal Reserve (Fed) Chair Jerome Powell continued his hawkish remarks for the second day.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,122.42, up 269.76 points (0.8%) from the previous session. The S&P 500, centered on large-cap stocks, rose 19.58 points (0.45%) to 4,396.44. However, the tech-heavy Nasdaq index closed down 0.42 points (0.0%) at 13,591.33. The three major indices started higher on solid economic data, but only the Nasdaq turned to a downward trend shortly after.

In the S&P 500, eight sectors excluding communication, consumer staples, and utilities rose. Following the Fed's announcement of large banks passing stress tests the previous day, bank stocks rallied by over 1.6%. JPMorgan Chase jumped 3.49%, Wells Fargo rose 4.51%, and Goldman Sachs also recorded gains in the 3% range. Energy stocks also rose by over 1%, supported by rising oil prices.

On the other hand, Nvidia, which had fallen the previous day due to reports of additional U.S. export restrictions on China, closed slightly lower again. Micron Technology, which released earnings after the market close the previous day, also dropped more than 4% amid China-related concerns. Joby Aviation surged over 11% on news of securing a $100 million investment from SK Telecom, expanding their existing partnership. Apple rose slightly, moving closer to a market capitalization of $3 trillion.

[Image source=Reuters Yonhap News]

Investors closely watched remarks from Fed officials including Chair Powell, as well as economic indicators, ahead of the last trading day of Q2 and the first half (the 30th). Powell, speaking in Madrid, Spain, said, "It will take considerable time to ease inflation," reaffirming his previous stance that two additional rate hikes are needed this year to curb inflation. He questioned, "Before the pandemic, a 5% interest rate was unthinkable. Now the question is whether that is sufficiently restrictive policy."

Earlier, at the FOMC meeting on the 14th, the Fed held rates steady but raised the year-end rate forecast on the dot plot from 5.1% (median) to 5.6%. This suggests the possibility of two baby steps (0.25 percentage point hikes) in the remaining four meetings this year. Powell said the timing and extent of further hikes depend on the economic outlook and did not rule out consecutive increases. At the ECB Sintra Forum the previous day, he also left open the possibility of consecutive hikes in July and September.

Currently, the market largely expects the Fed to resume rate hikes at the next FOMC meeting in July. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market is pricing in nearly a 90% chance of a baby step in July. This probability rose from about 74% a week ago to 81% after Powell’s remarks the previous day, and further to 86% after his additional comments on this day. However, unlike the Fed’s dot plot forecasting two hikes this year, the futures market still favors a scenario of one hike followed by a pause.

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, showed caution in his opening remarks at a speech in Dublin, saying, "We must avoid tightening too much and losing economic momentum." This suggests that neither rate hikes nor cuts may be necessary this year. He also said he does not see a need for cuts in 2024. Bostic does not have a voting right at this year’s FOMC.

Economic indicators showed strength. The confirmed U.S. Q1 GDP growth rate was revised upward to an annualized 2.0%, up 0.7 percentage points from the preliminary estimate of 1.3% announced last month. The initial flash estimate was 1.1%. The U.S. Commerce Department explained that upward revisions in exports, consumer spending, and government spending led to the higher confirmed growth rate. The U.S. releases growth rates in three stages: flash, preliminary, and confirmed.

On the same day, the Labor Department reported that initial jobless claims last week were 239,000, down 26,000 from the previous week, below Wall Street’s forecast of 265,000. Continuing claims, for those receiving benefits for at least two weeks, also fell by 19,000 to 1.74 million. Considering Powell’s repeated remarks that below-trend growth and labor market cooling are necessary to achieve the 2% inflation target, these indicators could support further Fed tightening.

On the 30th, the personal consumption expenditures (PCE) price index, a key inflation gauge watched by the Fed, will be released. The market expects the May core PCE to rise 4.6% year-over-year and 0.3% month-over-month, a slight deceleration from the previous month. If inflation data exceed expectations, tightening pressure on the Fed could increase.

In the New York bond market, Treasury yields rose. The 10-year Treasury yield hovered around 3.83%, and the 2-year Treasury yield, sensitive to monetary policy, was around 4.86%. The dollar index, which measures the dollar’s value against six major currencies, rose more than 0.4% to 103.3.

Only two trading days remain to close the first half. The S&P 500 and Nasdaq have risen about 14% and 30% respectively this year, fueled by a rally in AI-related stocks. The tech-heavy Nasdaq is expected to record its best first-half performance since 1983. However, the blue-chip Dow has only risen about 2% this year, showing relatively weak performance.

Economic media CNBC noted that despite the solid first half, many investors are anticipating a volatile second half. Jason Draho, Head of Asset Allocation at UBS Global Asset Management, said in an investor memo, "The S&P 500 has almost fully priced in a perfect soft landing, which could easily lead to a downturn," citing Fed actions, data, and AI news as variables.

International oil prices rose for the second consecutive day. At the New York Mercantile Exchange, August delivery West Texas Intermediate (WTI) crude oil closed at $69.86 per barrel, up 30 cents (0.43%) from the previous session.

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