[New York Stock Market] Powell Reiterates 'Disinflation'... Nasdaq Up 1.9%

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market closed higher on the 7th (local time) following Federal Reserve (Fed) Chair Jerome Powell's remarks on 'disinflation.'

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 265.67 points (0.78%) from the previous close to finish at 34,156.69. The S&P 500, focused on large-cap stocks, gained 52.92 points (1.29%) to close at 4,164, while the tech-heavy Nasdaq index climbed 226.34 points (1.90%) to end at 12,113.79.

By sector, interest rate-sensitive technology and telecommunications stocks within the S&P 500 all rose. The rally in energy-related stocks was also notable due to rising international oil prices. Microsoft (MS) announced it would integrate AI chatbots like ChatGPT into its search engine Bing, pushing its shares up 4.20% from the previous close. Alphabet, Google’s parent company, which officially launched its new conversational AI service Bard the day before, rose 4.61%. Baidu surged more than 12% on news of launching its AI chatbot 'Ernie Bot.' Leading tech stocks such as Nvidia (+5.14%), Apple (+1.92%), Tesla (+1.05%), and Meta (+2.99%) also rose collectively.

Pinterest, which released mixed earnings, slid more than 5%. Bed Bath & Beyond, a representative meme stock that surged over 90% the previous day, dropped nearly 50% after news emerged that it would issue shares to raise $1 billion. Zoom, the video conferencing platform, announced plans to cut about 1,300 employees, equivalent to 15% of its workforce, and closed up 9.85%. Boeing also rose 3.84% following news of a 2,000-person layoff.

[Image source=Reuters Yonhap News]

Investors closely watched corporate earnings alongside remarks from Fed officials, including Chair Powell. At an Economic Club event in Washington DC that afternoon, Powell said, "Disinflation has begun," but "there is no sign yet of easing in housing and services sectors. It will take a long time. Therefore, we intend to maintain restrictive interest rates and respond accordingly." This was largely consistent with his comments from the February FOMC meeting.

Regarding the January employment report released after the FOMC, Powell remarked, "No one expected it to be this strong." He emphasized that such robust employment data explains why a significant tightening period is necessary to reduce inflation. Initially, the market had expected the Fed to end its rate hike cycle early after the February FOMC, but the employment report released on the 3rd, which far exceeded expectations, immediately reversed that sentiment.

When asked if the market was wrong to expect rate cuts within the year, he said, "If the data is strong, we will have to raise rates higher than we predicted." He also commented on recent indicators, saying, "It is good that inflation is falling without hurting the labor market," and added, "The labor market is strong because the economy is strong."

As Powell’s remarks were less hawkish than expected, the market breathed a sigh of relief. The New York stock market, which started the day lower, turned upward after Powell’s 'disinflation has begun' comment was made public in the afternoon. Although the gains briefly paused when Powell said, "We could raise rates further depending on the data," all three major indices ultimately closed in positive territory.

Bloomberg reported, "Powell’s remarks were less aggressive than investors feared." Bill Adams, chief economist at Comerica Bank in Dallas, said, "It is important that Powell had the opportunity to signal a more aggressive stance but did not do so." Earlier, Minneapolis Fed President Neel Kashkari reaffirmed his position in an interview that "the strong employment increase means the Fed has work to do," advocating for rates to rise to 5.4%, which had heightened market caution ahead of Powell’s remarks.

[Image source=AP Yonhap News]

In the New York bond market, the 10-year U.S. Treasury yield rose slightly following Powell’s comments, moving from around 3.65% before his remarks to about 3.672% afterward. The dollar weakened. The Dollar Index, which measures the dollar’s value against six major currencies, traded around 103, down about 0.2%.

Corporate earnings have been exceeding expectations. According to FactSet, 69% of companies that have reported so far posted earnings above estimates. Chipotle released its earnings after the market closed on this day. This week, earnings reports from Walt Disney and PepsiCo are also scheduled. Investors are expected to look for signs of how the impact of interest rate hikes since last year is reflected in earnings.

The U.S. trade deficit released on this day set a new record high last year. The U.S. Department of Commerce reported that the annual trade deficit in goods and services for 2022 was $948.1 billion (approximately 1,197 trillion KRW), up 12.2% from the previous year. Exports last year were $3.0097 trillion, up 17.7%, while imports rose 16.3% to $3.9578 trillion. Additionally, the trade deficit for December last year was $67.4 billion, a 10.5% increase from the previous month. December exports fell 0.9% to $250.2 billion, while imports increased 1.3% to $317.6 billion.

Oil prices rose on expectations of demand recovery in China and a weaker dollar. At the New York Mercantile Exchange, March delivery West Texas Intermediate (WTI) crude oil closed at $77.14 per barrel, up $3.03 (4.09%) from the previous close. This was the largest daily gain since November 4 of last year.