[New York Stock Market] Powell's "December Slowdown" Remarks... Nasdaq Surges 4.41%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed higher on the 30th (local time), buoyed by Federal Reserve (Fed) Chair Jerome Powell's remarks that the pace of interest rate hikes could be reduced as early as December. The Nasdaq index, which is sensitive to interest rates and centered on tech stocks, soared by more than 4%.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,589.77, up 737.24 points (2.18%) from the previous session. The large-cap S&P 500 index rose 122.48 points (3.09%) to 4,080.11, and the Nasdaq index closed at 11,468.00, up 484.22 points (4.41%). The small-cap Russell 2000 index also ended the day higher at 1,886.57, up 50.02 points (2.27%).

Major indices of the New York stock market, which started mixed while awaiting Powell's remarks, briefly turned negative during the session. However, after Powell's comments were released, they all rallied. The Dow index escaped a bear market that was more than 20% below its low point.

Among individual stocks, the rally of interest rate-sensitive tech stocks such as FANG was prominent. Netflix rose 8.75% from the previous session, recording the highest gain among the S&P 500. Tesla increased by 7.67%. Meta Platforms and Apple also rose by 7.89% and 4.86%, respectively.

DoorDash surged 9.21% following news of layoffs involving about 1,250 employees. Biogen, a pharmaceutical company, jumped 4.72% on the strength of its Alzheimer's drug efficacy. Petco, a retailer of pet products, rose more than 16% on better-than-expected earnings. On the other hand, cybersecurity firm CrowdStrike slid 14.75% after reporting weak new service subscriptions and Stifel downgraded its investment rating.

Investors closely watched the employment data released that day, Powell's speech, and the Fed's Beige Book, a report on economic conditions. Powell said at the Brookings Institution in Washington, D.C., in the afternoon, "The time to slow the pace of rate hikes could be as early as the December meeting." He explained, "The Fed raised rates quickly, and it takes time for these moves to affect the economy," adding, "It would be reasonable to slow the pace of rate hikes."

In response, the market rallied in celebration of the slowdown. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently reflects more than a 72% chance of a 0.5 percentage point rate hike in December, up from about 66% the previous day.

Jeffrey Roach of LPL Financial said, "Most of Powell's remarks were dovish and predictable," and predicted, "The market will show strength in the near term." Greg Vasek, CEO of AXS Investments, said, "Investors are seeking certainty," and evaluated, "The message that the pace of hikes will slow as early as December is decisive."

However, Roberto Vagnato of Immobiliare Quadrone Srl called it a "nonsensical rally." He pointed out, "Powell said the pace would slow, but also said rates would be higher than previously expected. The market only wants to hear the first part of Powell's remarks."

Powell also emphasized in his speech that tightening would continue. He stated, "Despite some progress, there is a long way to go to price stability," reaffirming his support for maintaining restrictive levels. He added, "The Fed still has a way to go," and emphasized, "History strongly warns against premature easing policies."

Fed Governor Lisa Cook also delivered a similar message at an event that day, saying, "The Fed must continue to focus on achieving the 2% inflation target," but also noted, "Since we are moving into uncertain territory, it would be prudent to move in smaller steps (reducing the size of rate hikes)."

In the New York bond market, Treasury yields declined. The yield on the U.S. 10-year Treasury note slipped to around 3.699% after Powell's remarks were released. The drop in November alone was 0.375 percentage points, the largest since March 2020. On the same day, the 2-year Treasury yield, sensitive to monetary policy, fell to 4.372%. The 2-year yield also dropped 0.127 percentage points in November, the largest decline since May this year.

The dollar weakened. The Dollar Index, which measures the value of the dollar against six major currencies, fell about 0.7% to the 106 level. Meanwhile, cryptocurrencies including Bitcoin rallied on risk asset appetite. Bitcoin rose more than 3% from the previous session, reclaiming the $17,000 level.

Labor market data released before the market opened that day confirmed the effects of Fed tightening. According to the ADP National Employment Report, private sector employment in U.S. companies increased by 127,000 in November. This is about half the increase in private jobs in October (239,000) and the lowest since January last year. It also fell well short of the expert forecast of 200,000.

On the same day, the U.S. Department of Labor's Job Openings and Labor Turnover Survey (JOLTS) showed that job openings last month were 10.3 million, down 353,000 from the previous month. Compared to the same period last year, it decreased by 760,000.

Investors' attention is focused on the employment report to be released on December 2. This report, which the Fed monitors, is considered a more accurate indicator showing the overall employment status in the U.S., combining both private and public sectors. Currently, economists expect nonfarm payrolls in November to increase by 200,000, slowing from the previous month. Ahead of the December Federal Open Market Committee (FOMC) regular meeting, the November Consumer Price Index (CPI) will be released on December 13. In the Eurozone, the November CPI slowed to the 10% range on the same day.

According to the Beige Book released by the Fed that day, inflation eased in some regions while economic growth also slowed. This assessment covers the economic conditions in the 12 Federal Reserve Banks' districts from mid-October to November 23.

Economic activity in the U.S. showed flat or mild expansion, far below the moderate growth confirmed in the previous Beige Book. Five regions recorded slight or moderate growth, but the remaining seven showed no change or slight declines. The Beige Book stated, "Interest rates and inflation continue to burden economic activity," and "Many reported greater anxiety and pessimism."

Meanwhile, concerns over a railroad union strike were eased by intervention from the U.S. House of Representatives. The House voted on a bill to force an agreement preventing a railroad strike, passing it with 290 votes in favor and 137 against. The bill enforces a tentative agreement reached in September through mediation by the Biden administration, including a 24% wage increase over five years. There had been concerns that a railroad strike would worsen supply chain disruptions and further fuel U.S. inflation, which is at its highest level in 40 years.

Oil prices rose more than 3%. On the New York Mercantile Exchange, the January contract for West Texas Intermediate (WTI) crude oil closed at $80.55 per barrel, up $2.35 (3.01%) from the previous session.