[New York Stock Market] Rise on Expectations of Interest Rate Hike Pause and Yellen's Reversal... Nasdaq Up 1.01%

Major indices on the U.S. New York Stock Exchange closed higher on the 23rd (local time) as they digested the results of the March Federal Open Market Committee (FOMC) regular meeting. Market expectations that the Federal Reserve's (Fed) rate hike cycle is nearing completion further expanded, while investors betting on the possibility of rate cuts within the year also increased. Janet Yellen, U.S. Treasury Secretary, who had drawn a line on comprehensive insurance provision leading to a sharp stock price drop the previous day, reversed her stance regarding the banking crisis, stating that "emergency measures can be used if necessary."

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,105.25, up 75.14 points (0.23%) from the previous session. The S&P 500, focused on large-cap stocks, rose 11.75 points (0.30%) to 3,948.72, and the tech-heavy Nasdaq index closed at 11,787.40, up 117.44 points (1.01%).

Within the S&P 500, only technology and telecommunications stocks sensitive to interest rates rose more than 1%. The other nine sectors showed weakness. Netflix closed up 9.1% from the previous session. Meta Platforms (+2.24%), Google Alphabet (+2.16%), and Microsoft (+1.97%) also showed gains. This is seen as investors returning to tech growth stocks centered on big tech amid expectations that the rate hike cycle is nearing its end. Apple rose 0.70%, briefly surpassing $161 during the session, marking its highest level since September last year.

Meanwhile, Coinbase fell more than 14% following news that it received a warning from the Securities and Exchange Commission for securities law violations. First Republic Bank and PacWest Bancorp, which had been engulfed in crisis rumors after the Silicon Valley Bank (SVB) bankruptcy, reversed their morning gains due to selling pressure and closed down more than 6% and 9%, respectively.

[Image source=Reuters Yonhap News]

Investors digested the previous day's FOMC results while closely watching the Fed's future rate hike path, monetary policy decisions of other major countries, and movements in government bond yields. Fahad Kamal, Chief Investment Officer (CIO) at Kleinwort Hambros, said, "The Fed is sending signals that the (rate hike cycle) is almost over, which has somewhat relieved the market." Rebound buying following the sharp sell-off centered on big tech was also observed.

At the FOMC meeting the previous day, the Fed continued its tightening with a baby step (a 0.25 percentage point increase in the benchmark rate), but by maintaining the year-end rate forecast (median 5.1%) on the dot plot and removing the phrase "ongoing increases" from the policy statement, it effectively signaled that the rate hike cycle is nearing its end. Considering that the U.S. benchmark rate has risen to 4.75-5.0%, this implies that only one more 0.25 percentage point hike remains.

Currently, the market is divided between expectations of a rate hold and an additional baby step in May, with a slight tilt toward a hold. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of the afternoon of this day, federal funds futures markets reflect more than a 68% probability that the Fed will hold rates steady at the May FOMC meeting. The hold expectation has risen from the 50% range the previous day. The probability of a 0.25 percentage point hike in the same month is about 31%.

Additionally, the market largely expects rate cuts by the end of the year, contrasting with Fed Chair Jerome Powell's earlier statement that rate cuts are not being considered this year. Currently, many investors are betting that the rate, currently at 4.75-5.0%, will fall to 4.25-4.5% by December. This is significantly below the median 5.1% indicated by the Fed's dot plot the previous day. Matthew Hornbach, Head of Macro Strategy at Morgan Stanley, said, "The market will not rule out the possibility of rate cuts," adding that this possibility could increase if employment and inflation indicators slow down.

Yellen's reversal also supported investor sentiment in the latter part of the trading day. Yellen said in the House of Representatives, "We acted quickly to prevent contagion, and that is a tool we can use again," adding, "We are prepared to take additional measures if necessary." This effectively reversed her previous day's statement that "comprehensive insurance will not be provided." That statement, along with Powell's remark that "there will be no rate cuts this year," had weighed on the stock market.

Following the U.S. Fed, the Bank of England (BOE) and the Swiss National Bank (SNB) also raised interest rates in their monetary policy decisions. The recent series of rate hikes by major central banks amid banking risk concerns reflects both the importance of lowering inflation and signals that financial risk concerns are stabilizing.

The Bank of England raised its benchmark rate by 0.25 percentage points as expected. This marks the 11th consecutive increase since the rate hike cycle began in December 2021. The Swiss National Bank implemented a 0.5 percentage point hike, stating that "the newly adjusted rate is at the level we see as necessary for price stability." This big step (a 0.5 percentage point increase) is seen as confirming the end of the financial turmoil triggered by Credit Suisse (CS), which had recently been engulfed in crisis rumors.

In the New York bond market, government bond yields fell slightly. The 10-year U.S. Treasury yield dropped to around 3.39%, and the 2-year yield fell to about 3.79%.

Additional data indicating that the U.S. labor market remains robust also emerged. According to the U.S. Department of Labor, new unemployment claims for the week of March 12-18 totaled 191,000, down 1,000 from the previous week. This decrease was contrary to experts' expectations of a slight increase. Unemployment claims are typically one of the earliest warning signs of an impending recession.

At the New York Mercantile Exchange, the May delivery price of West Texas Intermediate (WTI) crude oil closed at $69.96 per barrel, down 94 cents (1.33%) from the previous day.