[New York Stock Market] Strong Employment... Tightening Gains Momentum, Nasdaq Plummets 3.80%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed lower on the 7th (local time) as the September employment report fueled expectations of the Federal Reserve's (Fed) aggressive tightening.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 29,296.79, down 630.15 points (2.11%) from the previous session. The S&P 500, focused on large-cap stocks, ended at 3,639.66, down 104.86 points (2.80%), and the tech-heavy Nasdaq closed at 10,652.41, down 420.91 points (3.80%).

Among individual stocks, tech stocks sensitive to interest rates plunged sharply. Tesla closed down 6.32% from the previous session. Apple fell 3.67%, and Microsoft dropped 5.09%. The Biden administration officially announced a near ban on sales of U.S.-made advanced semiconductor equipment to Chinese semiconductor manufacturers and restrictions on exports of semiconductors for artificial intelligence (AI) and supercomputers to China, leading semiconductor stocks to weaken. Nvidia slid 8.03%, Intel fell 5.37%, and AMD, another leading semiconductor stock, dropped nearly 14% after revealing that third-quarter sales would fall short of expectations due to weakening PC demand.

Investors sought hints about the Fed's future tightening path through the September employment report released that day while closely watching movements in Treasury yields. According to the U.S. Department of Labor, nonfarm payrolls increased by 263,000 in September, falling short of market expectations. However, the unemployment rate dropped to 3.5%, reaching its lowest level in about 50 years.

With the employment market confirmed to be stronger than expected, the stock market faced strong downward pressure. Despite recent recession concerns, the unemployment rate hitting a 50-year low strengthened expectations that the Fed would accelerate its aggressive tightening. In particular, concerns about prolonged high inflation deepened as the hourly wage growth rate remained in the 5% range, indicating continued inflationary pressure for the time being. This also supports expectations of aggressive Fed tightening.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market currently reflects over an 81% probability of a giant step (a 0.75 percentage point rate hike) in November. This would mark the fourth consecutive giant step. This figure is higher than a week ago (56.5%) and the previous day (75.2%).

Peter Bukva, Chief Investment Officer (CIO) of Blickley Financial, said, "With weekly unemployment claims low, the pace of layoffs is also slow," adding, "The unemployment rate indicator encourages the Fed to continue aggressive rate hikes."

Amid tightening expectations, Treasury yields soared. The U.S. 10-year Treasury yield stood at around 3.88%, briefly reaching 3.91% during the session. Following last week's surge in Treasury yields due to financial market instability originating from the UK, the 4% level is again in sight. The 2-year Treasury yield, sensitive to monetary policy, also rose to around 4.3%.

The dollar also strengthened. The Dollar Index, which measures the value of the U.S. dollar against six major currencies, is approaching the 113 level.

John Williams, President of the New York Federal Reserve, indicated in a speech that the federal funds rate needs to rise to around 4.5%, signaling further rate hikes. The current U.S. benchmark interest rate is 3.0?3.25%. Williams emphasized the Fed's tightening resolve, stating, "How much we raise rates depends on the data," but lowering inflation to the 2% target is most important. He also predicted that inflation would stabilize starting next year due to consecutive rate hikes.

International oil prices continued to rise, surpassing $90 per barrel due to large-scale production cuts by oil-producing countries. On the New York Mercantile Exchange, the November West Texas Intermediate (WTI) crude oil price closed at $92.64 per barrel, up $4.19 (4.74%) from the previous session. This is the highest level since August 29.