[New York Stock Market] Rally on Expectations of Tightening End... Nasdaq Up 1.78%

The three major indices of the U.S. New York stock market all closed higher on the 2nd (local time), digesting the Federal Open Market Committee (FOMC) decision to keep the benchmark interest rate unchanged the previous day and the decline in long-term Treasury yields.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, which focuses on blue-chip stocks, closed at 33,839.08, up 564.50 points (1.70%) from the previous session. The S&P 500, centered on large-cap stocks, rose 79.92 points (1.89%) to 4,317.78, and the tech-heavy Nasdaq index gained 232.72 points (1.78%) to close at 13,294.19.

All 11 sectors in the S&P 500 posted gains. DoorDash surged more than 15% on better-than-expected earnings. Starbucks rose 9%, and Qualcomm increased by more than 6%. Fueled by expectations of the end of tightening, interest rate-sensitive tech stocks such as Tesla (+6.25%) and Nvidia (+2.79%) also showed gains. Apple, which is set to release earnings after the market close, also rose more than 2%. On the other hand, SolarEdge fell nearly 4% after reporting unexpected losses and forecasting weak sales in the fourth quarter. Moderna slid more than 6% after its third-quarter earnings missed expectations.

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Investors digested the previous day’s FOMC results, which were interpreted as more dovish (favoring monetary easing) than expected, while also monitoring Treasury yield movements and economic indicators. The Federal Reserve (Fed) kept the federal funds rate unchanged at 5.25-5.5%. This unanimous decision reflected tightening financial conditions due to the recent sharp rise in Treasury yields despite strong economic data.

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, "Looking at overall financial conditions, this could influence future monetary policy." However, he added that "it is not yet certain whether conditions are sufficiently restrictive." He also noted, "Pausing rate hikes does not mean it will be difficult to raise rates again."

Despite Powell leaving room for further hikes, market sentiment has increasingly viewed the rate hike cycle as effectively over, leading to a rally through the day.

Economic data released that day also supported the view that the Fed’s tightening is nearing its end. Initial jobless claims last week, a gauge of labor market overheating, rose by 5,000 to 217,000, the highest in seven weeks since the second week of September. This slightly exceeded the Wall Street Journal (WSJ) consensus estimate of 214,000. 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 on the Labor Department’s October employment report to be released the next morning. Since the Fed has indicated that below-trend growth and a slowing labor market are necessary to reduce inflation, attention is on whether signs of a slowdown will be confirmed in the report. Wall Street expects nonfarm payrolls to increase by about 170,000 to 180,000, with the unemployment rate forecast at 3.8%.

The market largely expects a rate hold in December. According to the CME FedWatch tool, as of that day, the federal funds futures market priced 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 was around 19%.

In the New York bond market, the global benchmark 10-year U.S. Treasury yield fell to around 4.66%. The 2-year yield, sensitive to monetary policy, traded near 4.99%.

The dollar weakened. The Dollar Index, which measures the dollar’s value against six major currencies, dropped more than 0.7% to around 106.1. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s "fear gauge," fell more than 7% to the 15 level.

As the earnings season continues, Apple, the largest company by market capitalization, is set to report earnings after the market close. Since Apple accounts for more than 7% of the S&P 500, its stock movement will inevitably impact the broader market immediately.

International crude oil prices rebounded after four trading days, influenced by the decline in long-term Treasury yields and the weaker dollar. At the New York Mercantile Exchange, December delivery West Texas Intermediate (WTI) crude oil closed at $82.46 per barrel, up $2.02 (2.51%) from the previous session.