[New York Stock Market] Declines Ahead of Debt Ceiling Vote... Nasdaq Down 0.63%

The three major indices of the U.S. New York stock market all closed lower on the 31st (local time), the last trading day of May, as they awaited the vote on the debt ceiling agreement.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,908.27, down 134.51 points (0.41%) from the previous session. The S&P 500, which focuses on large-cap stocks, closed at 4,179.83, down 25.69 points (0.61%), and the tech-heavy Nasdaq closed at 12,935.29, down 82.14 points (0.63%).

In the S&P 500, energy, financial, industrial, materials, and technology sectors all fell more than 1%. Thanks to the AI (Artificial Intelligence) boom, Nvidia, which touched a market capitalization of $1 trillion intraday the previous day, dropped more than 5% from the previous close. Micron Technology fell nearly 5% after stating there was no need to raise its Q3 guidance. Advance Auto Parts plunged 35% due to weak earnings. AI semiconductor company Ambarella fell nearly 12% after releasing disappointing Q2 earnings guidance. On the other hand, fintech company SoFi rose more than 15% on expectations of student loan repayment relief if the debt ceiling agreement passes. Intel also rose nearly 5% on optimistic remarks from management.

[Image source=Reuters Yonhap News]

Investors are closely watching the House of Representatives' vote on the debt ceiling agreement scheduled for around 8:30 p.m., key economic indicators, and remarks from Federal Reserve (Fed) officials. Sam Stovall, Chief Investment Strategist at CFRA Research, conveyed the sentiment that while the debt ceiling increase is likely to pass before the default deadline, investors are curious whether more changes and time will be needed beforehand.

The congressional process has also accelerated after the House Rules Committee, known as the 'gatekeeper,' approved the agreement the previous day. Patrick McHenry, a Republican negotiator and House member, appeared on CNBC's Squawk Box in the morning and expressed optimism, saying, "I believe we have secured enough votes to pass the bill." If passed, the agreement will be sent to the Senate. However, opposition continues, especially from hardline Republicans demanding the resignation of House Speaker Kevin McCarthy, drawing investors' attention to whether this could become a variable. The previously disclosed agreement essentially postpones the debt ceiling until January 1, 2025, in exchange for some government spending cuts.

Earlier, the U.S. Treasury had again set June 5 as the X-day when cash runs out. This week also features a large number of short-term Treasury auctions and redemptions, attracting investor attention. Major investment banks, including JP Morgan, have predicted that ongoing U.S. Treasury issuance under this agreement could lead to significant capital outflows from the stock market.

On this day, Fed officials also made remarks suggesting a rate hold in June. Philip Jefferson, nominated as Fed Vice Chair, said, "The decision to keep policy rates steady at the upcoming meeting should not be interpreted as having reached the peak rate in this tightening cycle," adding, "Skipping a rate hike will allow us to review more data before deciding on further policy tightening."

On the same day, Patrick Harker, President of the Philadelphia Fed, also said, "We are seriously considering skipping a rate hike," and emphasized, "We need to reach a point where monetary policy is restrictive, and even if not now, we are close to that point." He highlighted the importance of the employment report to be released this Friday and the Consumer Price Index (CPI) announced on the first day of the June FOMC meeting.

Market expectations for a rate hold at the June FOMC have surged sharply. According to the CME FedWatch tool, the federal funds futures market currently reflects about a 72% chance that the Fed will hold rates steady in June. This is a sharp rise from the 33% level seen the previous day and earlier that morning. Conversely, the probability of an additional 0.25 percentage point hike has dropped from the mid-60% range to around 27%.

Earlier that morning, the Job Openings and Labor Turnover Survey (JOLTs) showed 10.1 million job openings in April, exceeding market expectations and supporting the possibility of an additional hike in June. Meanwhile, the Chicago Fed's May PMI fell to 40.4 from 48.6 the previous month.

The Beige Book released that afternoon noted signs of cooling as U.S. employment and inflation slightly eased over recent weeks. The Beige Book stated, "Employment increased at a slower pace than in the previous report in most districts," and "Prices also rose more slowly in many districts." This assessment covers economic conditions from late April through May 22 across the 12 Federal Reserve districts and serves as foundational material for the June FOMC regular meeting.

The Beige Book assessed that overall economic activity in the U.S. remained largely unchanged in recent weeks. Four districts reported slight increases in economic activity, six districts reported no change, and two districts reported slight declines. Some districts noted an increase in consumer loan delinquencies. On the same day, the Federal Deposit Insurance Corporation (FDIC) announced that deposits fell by $427.1 billion in Q1 of this year amid the Silicon Valley Bank (SVB) crisis, marking the largest outflow since 1984.

In the New York bond market on this day, Treasury yields declined. The 10-year U.S. Treasury yield stood around 3.64%, and the 2-year Treasury yield, sensitive to monetary policy, was around 4.40%. The Dollar Index, which measures the dollar's value against six major currencies, hovered near 104.2, remaining steady.

International crude oil prices fell for the second consecutive day ahead of the OPEC+ oil-producing countries' meeting, weighed down by weak Chinese manufacturing data. At the New York Mercantile Exchange, July delivery West Texas Intermediate (WTI) crude closed at $68.09 per barrel, down $1.37 (1.97%) from the previous session.