[New York Stock Market] After a Sharp Rise, Taking a Breather... Nasdaq Closes Down 1.12%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The US New York stock market, which showed a strong rally last week on expectations that inflation had peaked, closed lower on Monday, the 14th (local time), entering a consolidation phase.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,536.70, down 211.16 points (0.63%) from the previous session. The S&P 500, centered on large-cap stocks, ended at 3,957.25, down 35.68 points (0.89%), and the tech-heavy Nasdaq closed at 11,196.22, down 127.11 points (1.12%).

By sector, healthcare showed strength. Moderna closed up 4.57% from the previous session on positive news about the latest COVID-19 booster vaccine. Competitor Pfizer also jumped 3.45%. Merck & Co. (+2.44%), Johnson & Johnson (+1.57%), and AstraZeneca (+1.82%) all rose together.

On the other hand, technology stocks, which soared last week on hopes of inflation peaking, were sluggish. Microsoft fell 2.25%, Tesla dropped 2.56%. Amazon slid 2.28% following reports that it plans to lay off about 10,000 employees this week. Additionally, Oatly fell more than 12% after revealing a larger-than-expected quarterly loss. Hasbro dropped nearly 10% after Bank of America (BoA) lowered its target price from $73 to $42 per share.

On this day, the market showed signs of consolidation as investors reflected on the background of last week's rally. Chris Hersh of Goldman Sachs said, "The onslaught of the Q3 earnings season and the flood of end-of-month and beginning-of-month economic data releases have passed, and now as we enter the holiday season, this week is a period of information lull for the market." He added, "The market is now contemplating the possibility that inflation has peaked, the future path of interest rates, and the potential for a recession."

Some argue that last week's rally was excessively ahead of itself. The S&P 500 rose 5.9% last week, marking the largest weekly gain since June. The Nasdaq surged 8.1%, and the Dow climbed 4.2%. Monday's decline reflected profit-taking following this rally and caution due to the excessive advance.

Federal Reserve Vice Chair Lael Brainard reaffirmed on this day that "it will soon be appropriate to slow the pace of rate hikes," but emphasized that "there is still more work to be done," indicating that rate hikes are not over yet. This aligns with the previous day's remarks by Fed Governor Christopher Waller, who said there is still a long way to go before rate hikes conclude. Following four consecutive giant steps (0.75 percentage point hikes), the US benchmark interest rate currently stands at 3.75?4.0%.

The market expects the Fed to slow the pace of rate hikes at the FOMC meeting scheduled for December 13?14, raising rates by 0.5 percentage points instead of 0.75. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) rate market currently prices in over an 80% chance of a big step by the Fed in December, up from 52% before the CPI release on the 7th. Meanwhile, the probability of a giant step has dropped from 48% a week ago to 19.4% on this day.

However, there are forecasts that the economy will slow next year due to continued aggressive tightening, leading to a rapid decline in inflation. Goldman Sachs expects the core personal consumption expenditures (PCE) price index, excluding energy and food prices, to fall from the current 5.1% to 3.5% by mid-next year and 2.9% by the end of next year.

In the New York bond market on this day, Treasury yields rose as investors watched the direction of future monetary policy. The 10-year Treasury yield recovered to around 3.8%. The 2-year yield, sensitive to monetary policy, rose to around 4.4%.

The dollar showed strength. The dollar index, which measures the value of the dollar against six major currencies, rose more than 0.5% from the previous session to around 106.8.

At the same time, investors are also watching the cryptocurrency instability triggered by FTX's liquidity crisis. Currently, Bitcoin is trading around $16,320, down about 1% from the previous session. Reports also emerged that the US Southern District of New York is investigating the collapse of the cryptocurrency exchange FTX. The Bahamas police previously issued a statement saying they have launched an investigation into possible illegal activities by FTX. FTX filed for Chapter 11 bankruptcy protection in Delaware court on the 11th due to liquidity issues.

Oil prices fell for the first time in three trading days due to the strong dollar. At the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude oil prices closed at $85.87 per barrel, down $3.09 (3.47%) from the previous day.