New York Stock Market Rises Over 1% Early on Hopes for End of Tightening... Treasury Yields Fall

The three major indices of the U.S. New York stock market showed a unified upward trend in the early session on the 2nd (local time), digesting the Federal Open Market Committee (FOMC) results from the previous day, which kept the benchmark interest rate unchanged. After the market closes on the same day, the earnings report of Apple, the company with the largest market capitalization, is scheduled to be released.

At around 10:30 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, centered on blue-chip stocks, was moving at around 33,607 points, up 1% from the previous close. The S&P 500 index, focused on large-cap stocks, was up 1.31% at 4,293 points, and the Nasdaq index, centered on technology stocks, was up 1.25% at 13,225 points.

Currently, all 11 sectors in the S&P 500 index are showing gains. DoorDash surged more than 17% compared to the previous close, buoyed by earnings that exceeded expectations. Qualcomm also rose more than 6%. Tesla rose about 4%, and Nvidia showed an increase of around 2%. Apple, which is scheduled to release earnings after the market closes, also rose more than 1%. On the other hand, SolarEdge fell more than 4%, forecasting weak fourth-quarter sales along with unexpected losses. Moderna slid more than 6% as its third-quarter earnings fell short of expectations.

[Image source=Reuters Yonhap News]

Investors are digesting the previous day’s FOMC results, which were interpreted as more dovish (favoring monetary easing) than expected, while closely watching movements in Treasury yields and economic indicators. The Federal Reserve (Fed) kept the federal funds rate unchanged at 5.25?5.5%. This decision reflects tightening financial conditions due to the recent sharp rise in Treasury yields despite strong economic indicators. Fed Chair Jerome Powell acknowledged in a press conference that financial conditions have tightened further due to the sharp rise in long-term Treasury yields since this summer, stating, "Considering overall financial conditions, this could affect future monetary policy." However, he added, "I am not yet confident that conditions are sufficiently restrictive," leaving room for a rate hike. He also noted, "A pause in rate hikes does not mean it will be difficult to raise rates again."

Despite clearly indicating that the possibility of further hikes is not ruled out, the market is increasingly viewing the rate hike cycle as effectively over. This has driven the stock market rally from the previous day into the current session.

Economic indicators released this morning also support the view that the Fed’s tightening is nearing its end. Last week’s initial jobless claims, which gauge overheating in the U.S. labor market, rose by 5,000 to 217,000, the highest in seven weeks since the second week of September. This slightly exceeded the expert forecast of 214,000 compiled by The Wall Street Journal (WSJ). Labor costs in the third quarter, which could impact inflationary pressures, decreased by 0.8%, contrary to the initially estimated 0.7% increase.

Accordingly, the key focus is the October employment report from the Department of Labor, to be released on the 3rd. Since the Fed has stated that below-trend low growth and labor market slowdown are necessary to reduce inflation, attention is on whether signs of slowdown will be confirmed in the employment report. Wall Street expects nonfarm payrolls to increase by about 170,000 to 180,000, with the unemployment rate forecasted at 3.8%.

The market largely expects a rate hold in December. According to the CME FedWatch tool, the federal funds futures market currently prices in more than an 80% chance that the Fed will keep rates unchanged at 5.25?5.5% at the next meeting. The probability of a "baby step" hike is around 20%.

As the earnings season continues, Apple, the company with the largest market capitalization, will release its earnings after the market closes. Since Apple accounts for more than 7% of the S&P 500 index, its stock price movement will inevitably have an immediate impact on the overall market. According to FactSet, Apple’s quarterly revenue is estimated at $89.3 billion, continuing a decline for the fourth consecutive quarter. Barron's commented, "The market’s next major test will be Apple’s earnings after the close," adding, "Not only in terms of market capitalization but also as a potential indicator of the global economic environment." The publication also noted that the next test will be 'Jobs Friday,' when the employment report is released on Friday.

In the New York bond market today, U.S. Treasury yields are falling as the market digests the FOMC results. The global benchmark 10-year U.S. Treasury yield dropped to around 4.65%. The 2-year yield, sensitive to monetary policy, fell to about 4.95%. Capital Economics forecasted, "As inflation eases, Treasury yields will fall further." The dollar index, which measures the value of the U.S. dollar against six major currencies, is trading around 106.1, down more than 0.7%. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s ‘fear gauge,’ fell more than 5% to around 15.

European stock markets are also rising. Germany’s DAX index rose 1.52%, the UK’s FTSE index gained 1.48%, and France’s CAC index increased 1.98%. Following the Fed, the Bank of England (BOE) also held its monetary policy committee meeting today and, as expected, kept the benchmark interest rate unchanged for the second consecutive time.