[New York Stock Market] Decline on Fed Hawkish Remarks... Nasdaq Down 0.35%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York stock market showed broad weakness on the 17th (local time) as Federal Reserve (Fed) officials, the central bank, clearly signaled that the hawkish (monetary tightening preference) stance on interest rate hikes to lower inflation is not over yet. Meanwhile, Treasury yields surged.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,546.32, down 7.51 points (0.02%) from the previous session. The large-cap focused S&P 500 index ended at 3,946.56, down 12.23 points (0.31%), and the tech-heavy Nasdaq index closed at 11,144.96, falling 38.70 points (0.35%).

By stock, the so-called 'FAANG+M' stocks all slid except for Apple. Meta Platforms closed down 1.57% from the previous session. Tesla fell 2.01%, Amazon dropped 2.34%, and Netflix declined 3.51%. On the other hand, semiconductor stocks such as Intel (+1.22%), AMD (+1.65%), and Qualcomm (+1.76%) mostly rose. Pharmaceutical stocks including Merck & Co. (+2.38%) also showed gains.

Retail stocks, which had been sluggish due to the previous day's 'retail giant' Target shock, rose partly thanks to some earnings effects. Department store Macy's jumped more than 15% after beating expectations and raising its annual earnings guidance. Another department store chain, Kohl's, also rose 5.44%. Target closed up 4.21% as well.

Investors closely watched corporate earnings along with Fed officials' remarks and Treasury yield movements. While individual stocks showed mixed results based on earnings, the overall market sought to gauge the direction of the tightening policies weighing on the economy and recession concerns through Fed officials' comments.

James Bullard, President of the Federal Reserve Bank of St. Louis, said on the day, "We are not yet in a territory where policy rates can be considered sufficiently restrictive," signaling that further rate hikes will continue. He did not specify the size of the hikes, but the market expects rates to reach 5-7%. Esther George, President of the Federal Reserve Bank of Kansas City, said in an interview the previous day, "It is difficult to continue lowering inflation without a substantial slowdown," and warned that "the economy could contract."

Bullard's hawkish remarks and growing recession concerns pushed U.S. Treasury yields sharply higher. In the New York bond market, the 10-year Treasury yield jumped to 3.76%, briefly surpassing the 3.8% level during the session. The 2-year yield, sensitive to monetary policy, also rose to 4.45%. The inversion of the yield curve, where the long-term 10-year yield is below the 2-year and even the 3-month yield (4.23%), continues. This phenomenon is typically seen as a precursor to a recession.

Mark Haefele, Chief Investment Officer (CIO) of UBS Global Wealth Management, pointed out, "Additional tightening and the cumulative impact of rate hikes this year still indicate a high risk of recession."

Economic indicators were generally weak. October housing starts fell 4.2% from the previous month. New building permits also decreased by 2.4%. The Philadelphia Fed manufacturing activity index for November was -19.4, marking the third consecutive month in negative territory, indicating contraction in the manufacturing sector. This index worsened compared to the previous month (-8.7). Weekly initial jobless claims decreased by 4,000 from the previous week, but the 4-week average of claims increased by 2,000.

Haefele, the CIO, forecasted, "The macroeconomic prerequisites for a sustained rally, namely rate cuts and bottoms in growth and corporate earnings, have not yet arrived."

Amid growing recession fears, oil prices fell. On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude oil prices closed at $81.64 per barrel, down $3.95 (4.62%) from the previous session.