New York Stock Market Declines Amid Focus on Private Employment and Powell's Testimony

Major indices on the U.S. New York Stock Exchange showed slight declines in early trading on the 8th (local time) as investors monitored Federal Reserve Chair Jerome Powell's testimony before the House of Representatives and key economic indicators. The market exhibited early volatility, initially falling on stronger-than-expected employment data before briefly turning upward.

As of 10:22 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was down 111.86 points (0.34%) to around 32,744 compared to the previous close. The large-cap S&P 500 index fell 6.52 points (0.16%) to 3,979, while the tech-heavy Nasdaq Composite dropped 20.34 points (0.18%) to 11,509.

By individual stocks, Tesla declined more than 3% following news that transportation authorities have launched a preliminary investigation into the Tesla Model Y. CrowdStrike, which reported better-than-expected earnings, traded up about 1%. The company posted Q4 revenue of $637 million and earnings per share of 47 cents, surpassing Wall Street estimates of $625 million and 43 cents. Occidental Petroleum rose over 3% after it was confirmed that Warren Buffett's Berkshire Hathaway recently purchased about 5.8 million shares. Speechify fell more than 14% after releasing disappointing earnings.

[Image source=Reuters Yonhap News]

Investors are closely watching Chair Powell’s remarks over two days and key economic data. Powell appeared before the House at 10 a.m. to deliver the semiannual monetary policy report. His opening remarks were similar to the previous day’s, and similar comments are expected during the Q&A session.

On the previous day, Powell stated, "Recent economic data have all come in stronger than expected," adding, "This suggests that the terminal rate may be higher than previously anticipated." He emphasized tightening by saying, "If the overall data require faster tightening, we are prepared to raise rates more quickly." On this day as well, Powell said, "The Fed will not deviate from the current path until its mission is accomplished," and stressed, "We must do our best to achieve the 2% inflation target." He also expressed concerns about the labor market being very strong.

Accordingly, the likelihood of a 0.50 percentage point rate hike at the March Federal Open Market Committee (FOMC) meeting has increased. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures currently price in over a 70% chance of a big step hike in March. The year-end terminal rate forecast has also risen to 5.5%?5.75%, well above the Fed’s December dot plot median of 5.1%. Considering the current U.S. rate range of 4.5%?4.75%, this implies a potential additional 1 percentage point increase.

Private-sector employment data released before the market open also indicated that the U.S. labor market remains strong, reinforcing tightening expectations. According to the ADP National Employment Report, private-sector employment increased by 242,000 in February, exceeding the Dow Jones consensus estimate of 205,000. This also significantly surpassed the revised January figure of 119,000. Although February wages rose 7.2% year-over-year, slightly less than January’s 7.3%, the level remains high. ADP Chief Economist Nela Richardson said, "Wage growth remains quite elevated," adding, "A modest slowdown in the pace of increase alone will not be enough to bring inflation down quickly."

Amid ongoing tightening concerns, the market is showing caution ahead of the employment report due on the 10th. Since Powell emphasized data in determining rate hikes, the importance of indicators released before the March FOMC has increased. Currently, Wall Street expects nonfarm payrolls to rise by 225,000 in February, with the unemployment rate at 3.4%.

If the employment report again exceeds expectations with strong numbers like a month ago, the possibility of a big step hike (0.5 percentage point increase) will gain more weight. This would inevitably weigh heavily on financial markets. The Fed’s Beige Book, which contains economic assessments, will also be released this afternoon. Next week, February’s Consumer Price Index (CPI) and retail sales data will be announced.

Soaring Treasury yields showed signs of easing this morning. In the New York bond market, the two-year U.S. Treasury yield, sensitive to monetary policy, traded around 4.99% after hitting the 5% level the previous day. The 10-year yield stood at 3.92%.

The U.S. trade deficit for January, released before the market opened, rose 1.6% to $68.3 billion (approximately 90 trillion won), marking the largest increase in three months. However, it slightly missed the expert forecast of $68.7 billion. January imports increased 3% to $325.8 billion, while exports rose 3.4% to $257.5 billion. The slower pace of inflation easing this year and some increases in commodity and raw material prices are believed to have contributed to the widening trade deficit.

European stock markets showed mixed results. Germany’s DAX index rose 0.38%, and the UK’s FTSE index gained 0.25%. In contrast, France’s CAC index fell 0.08%.