[Asia Economy New York=Special Correspondent Joselgina] On the 14th (local time), the U.S. New York stock market closed lower across the board as high expected inflation and weaker-than-expected retail sales were confirmed. Due to the rally that rebounded more than 2% following the September Consumer Price Index (CPI) that exceeded expectations the previous day, the decline on this day was rather pronounced.
At the New York Stock Exchange (NYSE) on this day, the Dow Jones Industrial Average closed at 29,634.83, down 403.89 points (1.34%) from the previous session. The large-cap focused S&P 500 index ended at 3,583.07, down 86.84 points (2.37%), and the tech-heavy Nasdaq index closed at 10,321.39, down 327.76 points (3.08%). Despite the September CPI exceeding market expectations the previous day, the New York stock market, which had shown an uneasy rally rising more than 2%, fell back in just one day.
By stock, tech stocks sensitive to interest rates fell sharply across the board. Tesla dropped 7.55% from the previous session. Amazon fell 5.0%, Apple 3.22%, and Nvidia 6.13%. Electric vehicle stocks Nio and Rivian also dropped 8.06% and 11.66%, respectively.
JP Morgan and Wells Fargo, which announced earnings before the market opened, rose 1.66% and 1.86%, respectively. Both JP Morgan and Wells Fargo showed gains as their net profits exceeded market expectations. On the other hand, Morgan Stanley’s net profit fell short of expectations, dropping more than 5%. Additionally, Kroger, the second-largest supermarket chain in the U.S., announced it would acquire the fourth-largest chain Albertsons, causing Albertsons’ stock price to fall 8.45%.
Investors focused on major indicators such as U.S. retail sales, University of Michigan expected inflation, movements in government bond yields, and corporate earnings. September retail sales were $684 billion, the same as the previous month, falling short of expectations. Retail sales in 7 out of 13 sectors, including automobiles, furniture, and electronics, decreased compared to the previous month, indicating the impact of soaring inflation and aggressive interest rate hikes.
The surge in the University of Michigan expected inflation also negatively affected investor sentiment. The median expected inflation for the next year rose to 5.1% from 4.7% the previous month. The 5-year expected inflation also increased from 2.7% to 2.9%. This highlighted indicators such as CPI and PPI, which were higher than market expectations, spreading inflation fears. This directly supported the Federal Reserve’s tightening policy. Following Barclays, Bank of America (BoA) also raised its forecast for the Fed’s terminal rate next year to the 5% range after confirming the CPI data.
As tightening expectations continued, the 10-year Treasury yield in the New York bond market surpassed 4% again on this day. The 2-year yield, sensitive to monetary policy, also exceeded 4.51% during the session.
Esther George, President of the Federal Reserve Bank of Kansas City, supported further rate hikes on this day, saying, "Interest rates must continue to rise to curb inflation." However, she expressed concerns about overly rapid tightening, implying that there is no need to accelerate excessively from the current level considering economic repercussions.
Investors are also watching earnings. According to FactSet, the net profits of companies listed on the S&P 500 are expected to increase by only 2.4% in the third quarter. This is the lowest growth rate since the third quarter of 2020. Earlier in the third quarter, corporate net profits were expected to increase by about 10%.
Jamie Dimon, CEO of JP Morgan, said in a statement after the earnings announcement, "We are facing a strong headwind right in front of us," citing serious inflation, global interest rate hikes, uncertain effects of quantitative tightening, geopolitical risks from the Ukraine war, and instability in oil supply and prices as concerns.
Mark Haefele of UBS Global Wealth Management said, "With inflation expected to remain high for longer and the Fed expected to raise rates further, the cumulative effect of policy tightening has increased the risk of pushing the U.S. economy into a recession."
Investment bank BMO Capital Markets lowered its year-end S&P 500 index forecast from 4,800 to 4,300.
International oil prices fell. On the New York Mercantile Exchange, the November West Texas Intermediate (WTI) crude oil price closed at $85.61 per barrel, down $3.50 (3.93%) from the previous session.
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