[New York Stock Market] Tighter Monetary Policy Concerns Amid Higher-than-Expected PPI... Dow Down 0.9%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed lower on the last trading day of the week, the 9th (local time). Ahead of the Federal Reserve's (Fed) upcoming benchmark interest rate decision next week, the release of a Producer Price Index (PPI) that exceeded expectations has sustained concerns over tightening. Now, investors' attention is focused on the Consumer Price Index (CPI) to be released on the 13th.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,476.46, down 305.02 points (0.9%) from the previous session. The S&P 500, centered on large-cap stocks, fell 29.13 points (0.73%) to 3,934.38, and the tech-heavy Nasdaq dropped 77.39 points (0.7%) to close at 11,004.62.

On a weekly basis, the Dow fell 2.77%, marking its worst week since September. The S&P 500 and Nasdaq declined by 3.37% and 3.99%, respectively.

By sector, all S&P 500 sectors, including communication, declined. Lululemon closed down 12.85% from the previous session after releasing disappointing earnings forecasts. However, Morgan Stanley subsequently raised Lululemon’s target price. DocuSign surged 12.37% on strong earnings. Broadcom rose 2.57% following news of dividend increases and the resumption of share buybacks.

Investors monitored the November PPI, released before the market opened, while awaiting next week’s November CPI announcement and the Fed’s FOMC meeting.

According to the U.S. Department of Labor, the November PPI rose 7.4% year-over-year. Although the increase slowed compared to October’s 8.1%, it exceeded market expectations of 7.2%. The month-over-month PPI increase of 0.3% also surpassed the market forecast of 0.2%. Core PPI, excluding energy and food, rose 0.3% month-over-month and 4.9% year-over-year. The month-over-month increase was slightly higher than before.

The higher-than-expected producer prices immediately spread concerns about inflation and tightening. Ahead of the CPI release on the 13th, worries grew that high inflation is becoming entrenched. Tesla CEO Elon Musk stated on Twitter that if the Fed raises rates further next week, the recession will worsen.

At next week’s meeting, the Fed is widely expected to take a big step by raising the benchmark interest rate by 0.5 percentage points. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in over a 77% chance of a big step in December. This figure dipped slightly after the PPI release but then rose again.

Additionally, the probability that the Fed will take another big step at the February FOMC meeting next year stands at 48.5%, slightly up from the previous day.

In the New York bond market, the yield on the U.S. 10-year Treasury note rose to 3.567%, breaking above the 3.5% level again. The 2-year yield, sensitive to monetary policy, closed at 4.328%. The dollar index, which shows the value of the dollar against six major currencies, briefly surpassed the 105 level immediately after the data release before slightly easing its gains.

Stephanie Lang, Chief Investment Officer (CIO) at HomeRichberg, pointed out that investors hoped for a break from the Fed’s tightening stance, but the data does not support such hopes. Brenda Vingillo, CIO of Sandhill Global Advisors, said, "We need to wait for next week’s CPI figures, but this morning’s PPI numbers were definitely disappointing."

Oil prices fell for the sixth consecutive trading day. On the New York Mercantile Exchange, January WTI crude oil futures closed at $71.02 per barrel, down 44 cents (0.62%) from the previous session. The total decline over the past six trading days exceeds 11%.