[New York Stock Market] Tesla and Semiconductor Stocks Also Fall... Nasdaq Down 1.21% on 'Hawkish' Powell

The three major indices of the U.S. New York stock market all closed lower on the 21st (local time) following hawkish remarks by Jerome Powell of the Federal Reserve (Fed), indicating that additional interest rate hikes will continue this year to curb inflation. The Nasdaq index, which is sensitive to interest rates and centered on technology stocks, fell more than 1%.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 33,951.52, down 102.35 points (0.30%) from the previous session. The large-cap S&P 500 index ended at 4,365.69, down 23.02 points (0.52%), and the Nasdaq index closed at 13,502.20, down 165.10 points (1.21%).

Within the S&P 500, telecommunications, technology, and consumer discretionary stocks fell more than 1%. In contrast, energy, industrial, and utility stocks rose. Electric vehicle company Tesla dropped more than 5% despite recent positive news regarding North American EV charging standards, after Barclays downgraded its investment rating from ‘Overweight’ to ‘Equal Weight’. Semiconductor stocks, which had been rallying thanks to artificial intelligence (AI), including Nvidia (-1.74%), AMD (-5.73%), and Intel (-6%), all showed weakness. Amazon fell 0.76% after the FTC announced it had filed a lawsuit related to Prime membership sign-ups and cancellations. FedEx dropped more than 2% after releasing disappointing sales figures following the previous day’s market close. Meanwhile, cloud service provider MicroStrategy, which has invested in Bitcoin, surged nearly 6% on the back of Bitcoin’s rebound.

[Image source=Reuters Yonhap News]

Investors closely watched remarks from Fed officials, including Chairman Powell’s semiannual monetary policy report. Powell testified before the House Financial Services Committee, stating, "The majority of Federal Open Market Committee (FOMC) members expect two rate hikes this year." He added, "If the economy proceeds as expected, we can pretty much guess what will happen," and described the ‘two hikes this year’ scenario presented in the new dot plot this month as a "pretty good guess." Earlier, on the 14th, the Fed held rates steady at the FOMC meeting but raised the year-end rate forecast (median) on the dot plot from 5.1% to 5.6%, signaling the possibility of two baby steps (0.25 percentage point rate hikes) this year.

When a lawmaker described the June FOMC’s decision to hold rates as a tightening "pause," Powell immediately corrected the term, emphasizing, "I have never used the word pause, and I will not use it today." This was interpreted as a statement underscoring the ongoing nature of the Fed’s tightening cycle to reduce inflation. He noted, "Inflation has eased somewhat since mid-last year," but added, "Inflationary pressures remain high, and there is still a long way to go to bring it down to the 2% price stability target."

Currently, the market widely expects the Fed to resume rate hikes at the next July FOMC meeting. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds (FF) futures are pricing in nearly a 72% chance of a baby step hike in July. However, unlike the Fed’s dot plot signaling two hikes this year, the rate futures market still favors a scenario of one hike followed by a prolonged pause.

On the same day, Austin Goolsby, President of the Federal Reserve Bank of Chicago, told foreign media in an interview, "We have not yet decided how to proceed with the rate decision at the next meeting more than a month away," adding, "We need to see more signs on inflation before resuming rate hikes." Raphael Bostic, President of the Federal Reserve Bank of Atlanta, suggested in an essay that "the FOMC has already done a lot," and recommended a ‘play-it-by-ear’ approach, deciding based on evolving circumstances rather than pre-planning. Meanwhile, former Fed Governor Lawrence Lindsey argued in a CNBC interview that "core inflation is only easing under a microscope," and insisted the Fed should raise rates into the 6% range. Chairman Powell is scheduled to testify before the Senate Banking Committee on the 22nd.

In the New York bond market, Treasury yields remained steady. Digesting Powell’s remarks, the 10-year Treasury yield hovered around 3.72%, similar to the previous session. The 2-year Treasury yield, sensitive to monetary policy, rose slightly to about 4.71%. The dollar index, which measures the dollar’s value against six major currencies, fell nearly 0.5%, trading around the 102 level.

Kim Forrest, founder of Bokeh Capital Partners, told CNBC, "In recent weeks, the Fed has only delivered reassuring hikes," explaining that the market decline that day was due to some rally stocks, including growth stocks, faltering. Jonathan Krinsky of BTIG warned investors to expect potential declines following the AI-driven rally.

International crude oil prices rose. At the New York Mercantile Exchange, the front-month August West Texas Intermediate (WTI) crude oil price closed at $72.53 per barrel, up $1.34 (1.88%) from the previous day.