[New York Stock Market] First Rise of the New Year Closes Higher... Gains Narrowed by 'Hawkish' FOMC

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market all rose on the 4th (local time), recording the first gain of the new year despite concerns about an economic recession. However, as the hawkish (preference for monetary tightening) tone was confirmed in the minutes of the December Federal Open Market Committee (FOMC) regular meeting, the stock price gains narrowed in the afternoon.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,269.77, up 133.40 points (0.40%) from the previous session. The large-cap S&P 500 index rose 28.83 points (0.75%) to 3,852.97, and the tech-heavy Nasdaq index closed at 10,458.76, up 71.78 points (0.69%). After two consecutive days of decline, the three major indices recorded their first gain of the new year as bargain buying was confirmed.

[Image source=Reuters Yonhap News]

All 11 sectors within the S&P 500 index closed higher. Rallies of 1-2% were seen mainly in real estate, materials, financials, and consumer discretionary stocks. Energy stocks (+0.06%) saw only slight gains.

Individually, Chinese tech stocks listed in New York surged following approval news of Ant Group's capital raising plan. Alibaba rose 12.98% from the previous close. Baidu jumped 10.60%, and JD.com soared 14.68%. Customer Relationship Management (CRM) software company Salesforce rose 3.57% on news of a 10% workforce reduction. Tesla rebounded 5.12% after a double-digit drop the previous day. Apple also jumped over 1%, regaining its $2 trillion market capitalization in just one day. Semiconductor stocks such as Nvidia (+3.03%) and Qualcomm (+4.04%) also showed strong gains. On the other hand, Honeywell fell nearly 2% after its investment rating was downgraded to sell due to order slowdowns.

Investors sought hints about future monetary policy through the November Job Openings and Labor Turnover Survey (JOLTs) and the FOMC regular meeting minutes released on this day, ahead of the Federal Reserve's (Fed) rate hike scheduled for February.

According to the U.S. Department of Labor report, the number of job openings at U.S. companies as of November last year was 10.46 million, exceeding market expectations. The ratio of job openings per unemployed person, which the Fed monitors to assess labor market overheating, remained unchanged at 1.7 from the previous month. This means there are 1.7 vacant jobs for every unemployed person. Despite consecutive rate hikes and recession concerns, solid employment demand was confirmed, strengthening the Fed's tightening stance.

The December FOMC minutes released in the afternoon also confirmed hawkish signals. The Fed reaffirmed its tightening commitment to maintain a higher level of the benchmark interest rate until inflation is decisively controlled. This effectively dashed market hopes for a pivot (direction change) within the year.

Participants judged that "a restrictive policy stance needs to be maintained until there is confidence from economic indicators that inflation is on a sustained downward path to the 2% target," adding that "this will take time." Among the 19 FOMC members, none expected a rate cut to be appropriate in 2023. Earlier, at the December FOMC, the Fed ended its four consecutive giant steps (0.75 percentage point rate hikes) but raised the U.S. benchmark rate to 4.25%-4.5%, the highest in 15 years. Among participants, there was also caution that the Fed's slowing of rate hikes from December could be overinterpreted by the market.

Mark Zandi, Chief Economist at Moody's, evaluated that the Fed is trying to convince the market that it has no plans to cut rates soon. Andrew Hollenhorst, Citi Economist, said, "Fed officials are increasingly uncomfortable with the market underestimating their policy path," adding, "They may use more hawkish rhetoric going forward to tighten financial conditions further." Citi maintained its forecast of a 0.5 percentage point hike in February and a terminal rate of 5.25%-5.0%. Before the release of the FOMC minutes, the New York stock market had recorded gains of around 1%, but the gains narrowed afterward.

Concerns about a recession, which have recently weighed on the New York stock market, continue. The December Manufacturing Purchasing Managers' Index (PMI) released by the U.S. Institute for Supply Management (ISM) showed 48.4, remaining below the baseline of 50 for the second consecutive month, indicating contraction. This was below both the previous month and Wall Street expectations. ISM Chairman Timothy Fiore said, "The U.S. manufacturing sector contracted again," adding, "This is the lowest level since May 2020." Paul Ashworth, Chief North America Economist at Capital Economics, expressed concern, saying, "Most indicators point to a recession."

In the New York bond market, the inversion of the yield curve continues, with the 10-year long-term Treasury yield falling below the 2-year and 3-month short-term yields. This is generally considered a precursor to a recession. On this day, the 10-year U.S. Treasury yield dropped to 3.69%, the lowest since December last year. The 2-year yield, sensitive to monetary policy, fell intraday to around 3.18% before recovering some losses.

Ed Moya, analyst at OANDA, analyzed, "Restrictive monetary policy and recession concerns remain at the center of investors' minds," adding, "Pivot bets are premature and will create a difficult environment for the stock market."

International oil prices fell again on this day due to recession concerns compounded by the spread of COVID-19 in China. On the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil for February delivery closed at $72.84 per barrel, down 5.3% ($4.09).Meanwhile, gold, a safe-haven asset, continued its four-day winning streak. On the New York Commodity Exchange, February delivery gold rose 0.7% ($12.90) to $1,859 per ounce, closing at its highest level since June 10 last year.