[New York Stock Market] "No Surprise" FOMC Minutes Lead to Gains... Nasdaq Up 1.51%

[Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed higher on the 25th (local time) after the Federal Reserve (Fed) reaffirmed its policy that it may raise the benchmark interest rate by 0.5 percentage points a couple more times. It was evaluated that there was hardly any content that would surprise the market.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,120.28, up 191.66 points (0.60%) from the previous session. The S&P 500, which is centered on large-cap stocks, closed at 3,978.73, up 37.25 points (0.95%), and the Nasdaq, which is centered on tech stocks, closed at 11,434.74, up 170.29 points (1.51%). The Russell 2000, which focuses on small-cap stocks, recorded 1,799.16, up 34.34 points (1.95%).

The market paid close attention to the minutes of the May Federal Open Market Committee (FOMC) regular meeting released in the afternoon to find hints about the Fed’s future tightening moves. The market, which had been fluctuating in a narrow range, expanded its gains after 2 p.m., when the minutes containing details about the direction of future rate hikes were released. Investors also kept an eye on inflation-driven earnings shocks from companies amid ongoing concerns about economic slowdown.

By sector, discretionary consumer goods, energy, and technology stocks showed strength.

Department store company Nordstrom’s stock surged 14.02% from the previous session after news of better-than-expected earnings and an upward revision of its annual sales forecast. Sports apparel company Dick’s Sporting Goods rose nearly 10% on strong earnings despite lowering its annual outlook due to inflation concerns. Best Buy rose 8.97% despite Barclays downgrading it to ‘hold’ due to weakening demand for home appliances. Apparel company Express rose nearly 7% on news of an upward revision of its sales forecast.

Following the market turmoil caused by inflation-driven earnings shocks from Walmart and Target, investors remain cautious, but Stephanie Link, Chief Investment Strategist at Hightower Advisors, diagnosed that service and premium products are still performing well. Recently, as U.S. inflation has remained at its highest level in over 40 years, many companies are facing increased cost burdens such as labor and logistics expenses. Matt Perron, Research Director at Janus Henderson Investors, said, "Some investors had expected Armageddon in the retail sector," but added, "The current market is showing relief centered on the consumer sector."

Technology stocks also rebounded. Leading tech stock Tesla rose 4.88%. Semiconductor stocks such as Nvidia (+5.08%) and AMD (+1.63%) also showed gains. Software company Intuit jumped more than 8% after reporting better-than-expected earnings. Zoom Video also rose more than 8%.

Additionally, energy stocks such as Marathon Oil (+3.31%), Schlumberger (+2.62%), Chevron (+1.60%), and ExxonMobil (+2.01%) were strong. After the market close, Snowflake and Nvidia are scheduled to announce quarterly earnings.

Concerns about recession, which have driven the recent weeks’ market downturn, remain confirmed. In particular, there is a growing view that the Fed’s steep rate hikes to curb inflation, even at the cost of short-term pain, will directly hit growth. However, the FOMC minutes released on this day were almost identical to previously announced content. Philip Toos, CEO of Toos Asset Management, said, "There was nothing surprising," and evaluated, "The rally that showed strength throughout the afternoon reflects the fact that the market had already fallen significantly."

The Fed, through the FOMC regular meeting minutes released in the afternoon, signaled ‘big steps’ of raising the benchmark interest rate by 0.5 percentage points a few more times. The word ‘inflation’ was mentioned 60 times in the minutes. The minutes stated, "All participants reaffirmed their strong determination and will to take the necessary measures to restore price stability," and "Participants agreed that monetary policy stance should be shifted to neutral quickly by raising rates and reducing the balance sheet."

The market expects the policy rate to rise to around 2.5?2.75% by the end of this year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market is pricing in more than a 90% chance of a big step in June.

On the same day, the U.S. Congressional Budget Office (CBO) reported that real gross domestic product (GDP) is expected to grow by 3.1% in 2022. This is interpreted as based on the premise that the Fed can raise rates without pushing the U.S. economy into a recession.

Meanwhile, in the New York bond market, the yield on the U.S. 10-year Treasury note slightly fell to the 2.75% range. Due to recession concerns, investors flocked to safe assets such as government bonds, pushing prices up and yields down. Durable goods orders for April, released by the U.S. Department of Commerce in the morning, increased by only 0.4% month-on-month, falling short of market expectations (0.7%).

New York crude oil prices rose. At the New York Mercantile Exchange, the July West Texas Intermediate (WTI) crude oil price closed at $110.33 per barrel, up 56 cents (0.5%) from the previous session.