[New York Stock Market] Awaiting Employment Report Amid Tightening Concerns... Dow Down 0.18%

Major indices on the U.S. New York Stock Exchange closed mixed and near flat on the 8th (local time) as they digested Federal Reserve (Fed) Chair Jerome Powell's testimony to the House and strong employment data. Despite showing weakness early in the session due to stronger-than-expected data, the New York market later shifted to some gains. With ongoing concerns about tightening, investors are now awaiting the employment report to be released later in the week.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 58.06 points (0.18%) to close at 32,798.40. The large-cap S&P 500 index rose 5.64 points (0.14%) to 3,992.01, while the tech-heavy Nasdaq index gained 45.67 points (0.40%) to finish at 11,576.

Within the S&P 500, real estate, technology, and utilities sectors advanced, while energy and healthcare sectors declined. Tesla shares dropped 3.04% after news that transportation authorities have launched a preliminary investigation into the Tesla Model Y. Occidental Petroleum rose more than 2% following confirmation that Warren Buffett's Berkshire Hathaway recently purchased about 5.8 million shares. CrowdStrike, which reported earnings exceeding expectations, climbed 3.19%.

[Image source=Reuters Yonhap News]

Investors closely monitored Chair Powell's remarks over two days and key economic indicators such as private employment. Powell appeared before the House and reiterated his hawkish comments from the previous day, stating that "the terminal rate could be higher than previously expected" and that the Fed is "prepared to raise rates more quickly." However, he refrained from specifying the size of any rate hike, saying, "We have not made any decisions regarding the March meeting yet," and explained, "There are important indicators such as the Consumer Price Index (CPI) before the March FOMC. It will depend on the data and outlook we receive."

Since March last year, the Fed's tightening cycle has pushed U.S. interest rates to the highest levels since 2007, between 4.5% and 4.75%, and further hikes have been signaled. The March Federal Open Market Committee (FOMC) regular meeting, ending on the 22nd, will be followed by the release of a new dot plot reflecting tightening expectations. When asked whether the terminal rate could exceed 5.5%, Powell responded, "Based on current data, it could be higher." This figure significantly exceeds the year-end rate forecast median of 5.1% presented in the Fed's December dot plot.

Following two consecutive days of hawkish remarks, market expectations for a big step (a 0.5 percentage point rate hike) have intensified. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in about a 78% chance of a 0.5 percentage point hike at the March FOMC. This is a sharp increase from around 9% a month ago and 29% a week ago. It is even higher than the 69% level seen the previous day after Powell's Senate testimony, which had already heightened tightening concerns.

Year-end terminal rate forecasts are also converging around 5.5% to 5.75%. Goldman Sachs raised its terminal rate forecast to 5.5%?5.75% following Powell's remarks. Some analysts even project rates in the 6% to 7% range. Rick Rieder, Chief Investment Officer (CIO) at BlackRock, recently noted the resilience of the U.S. economy and suggested that "the Fed may raise rates to 6% and keep them there for an extended period." Ed Moya of OANDA commented, "The Fed will rely on data," adding, "At this point, one could argue that the Fed needs to raise rates into the 6% range."

On the same day, private employment data released before the market open further supported these tightening expectations by indicating continued strength in the U.S. labor market. According to the ADP National Employment Report, private sector employment increased by 242,000 in February, surpassing the Dow Jones consensus estimate of 205,000. This also significantly exceeded the revised January figure of 119,000. Although February wages rose 7.2% year-over-year, slightly less than January's 7.3%, wage growth remains elevated. ADP's Chief Economist Nela Richardson stated, "Wage growth remains quite high," and added, "A modest slowdown in wage growth alone will not be enough to bring inflation down quickly."

The January Job Openings and Labor Turnover Survey (JOLTs) released by the U.S. Department of Labor on the same day showed 1,082,000 job openings, exceeding market expectations of 1,058,000. The ratio of job openings to unemployed persons remained steady at 1.9. However, layoffs increased from 1.48 million to 1.72 million in January, signaling a gradual cooling of the labor market.

The Fed's Beige Book, released in the afternoon, noted a slight increase in overall economic activity in the U.S. earlier this year, confirming some resilience. However, the outlook was not optimistic. The report stated, "With heightened uncertainty, we do not expect a significant improvement in economic conditions going forward."

Investors are now focused on the February employment report to be released on the 10th. Wall Street currently expects nonfarm payrolls to increase by 225,000 in February, with the unemployment rate holding at 3.4%. If the employment report again exceeds expectations as it did last month, the Fed will face increased pressure to accelerate tightening. Following that, February CPI and retail sales data will be released next week. Given Powell's emphasis on data in determining rate hikes, the importance of these indicators ahead of the March FOMC has grown.

In the New York bond market, the two-year Treasury yield, sensitive to monetary policy, briefly rose to 5.085% during the session. The 10-year yield edged up to 3.97%. The dollar index, which measures the dollar's value against six major currencies, remained near 105.6, similar to the previous close.

Oil prices fell for the second consecutive day amid tightening concerns. On the New York Mercantile Exchange, April West Texas Intermediate (WTI) crude closed down 92 cents (1.19%) at $76.66 per barrel.