[New York Stock Market] Rally on Powell's Remark "0.75%P Not Considered"... Nasdaq Up 3.19%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market showed a relief rally on the 4th (local time) after Federal Reserve (Fed) Chair Jerome Powell ruled out a giant step of raising interest rates by 0.75 percentage points at once. Although the Fed implemented a big step (0.5 percentage point hike) for the first time since 2000, it was a pre-announced move, so there was no significant impact.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,061.06, up 932.27 points (2.81%) from the previous session. The large-cap S&P 500 index rose 124.69 points (2.99%) to 4,300.17, and the tech-heavy Nasdaq index closed at 12,964.86, up 401.10 points (3.19%). The small-cap Russell 2000 index also recorded a gain of 51.07 points (2.69%) to 1,949.92.

Investors closely watched the Federal Open Market Committee (FOMC) regular meeting results, Powell’s press conference, private employment data, and corporate earnings released that day.

The Fed raised the federal funds rate by 0.5 percentage points from the previous 0.25-0.5% range and announced it would begin quantitative tightening, including balance sheet reduction, starting June 1. This was as Powell had previously indicated. However, immediately after the FOMC statement was released, Powell said in the press conference that a 0.75 percentage point rate hike was "not actively being considered," causing the New York stock market to surge sharply about an hour and a half before the close.

Powell stated, "A 0.75 percentage point increase is not on the table," and mentioned that a 0.5 percentage point increase would continue to be discussed. This drew a line under the giant step that the market had been watching while suggesting that big steps like this one could continue at the June and July FOMC meetings.

Christopher Smart, CEO of Berings Investment, said, "The Fed’s message helped ease investors’ anxiety. There is a sense that they are heading in the right direction." Kim Forest, founder of Boke Capital, also commented, "It was wise to take the 0.75 percentage point hike off the table, which I think was a cause of relief in the market."

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market had reflected over a 90% chance of a 0.75 percentage point hike at the June meeting until the day before, but it has now dropped sharply to 0%.

Broad gains were confirmed across individual stocks as well. Starbucks and Airbnb, which had already been rising after releasing earnings that exceeded market expectations, closed up 9.83% and 7.71%, respectively. Tech stocks such as Apple (+4.10%), Alphabet (+4.20%), Nvidia (+3.73%), and Tesla (+4.77%) also showed strength. Large energy stocks like ExxonMobil (+3.98%) and Chevron (+3.14%) rose more than 3%.

At the press conference, Powell expressed confidence by saying, "I believe there is a good chance the U.S. economy can achieve a soft or moderate landing," leading cyclical stocks like Home Depot and Caterpillar to close up more than 3%.

However, ride-sharing company Uber’s stock fell more than 4% after quarterly losses far exceeded expectations. Another ride-sharing company, Lyft, plunged nearly 30% due to weak Q2 earnings guidance despite strong results. Additionally, Twitter closed up 0.39% amid CEO Elon Musk’s announcement of some monetization policies.

Market experts expect the relief rally to continue despite consecutive rate hikes. The U.S. 10-year Treasury yield surpassed 3% on the day but declined after Powell’s remarks.

The private sector employment increase for April fell short of Wall Street expectations. According to the ADP National Employment Report, private sector employment increased by only 247,000 in April compared to the previous month.

Oil prices rose on news that the European Union (EU) proposed a phased ban on Russian oil imports within six months. On the New York Mercantile Exchange, June West Texas Intermediate (WTI) crude oil closed at $107.81 per barrel, up $5.40 (5.3%) from the previous session. On the London ICE exchange, July Brent crude oil also rose $5.17 (4.9%) to $110.14 per barrel.