[New York Stock Market] Rally Stops Amid Hawkish Powell and Surge in Treasury Yields... Nasdaq Down 0.94%

The three major indices of the U.S. New York stock market all closed lower on the 9th (local time) following remarks by Federal Reserve (Fed) Chair Jerome Powell warning of the possibility of additional interest rate hikes and a sharp rise in Treasury yields.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,891.94, down 220.33 points (0.65%) from the previous session. The S&P 500, focused on large-cap stocks, fell 35.43 points (0.81%) to 4,347.35, while the tech-heavy Nasdaq dropped 128.97 points (0.94%) to 13,521.45.

All 11 sectors in the S&P 500 declined, with healthcare stocks falling more than 2%. Duolingo surged over 21% after raising its annual revenue forecast. Virgin Galactic Holdings jumped more than 19% following the announcement of cost-cutting initiatives. Fintech company Affirm Holdings rose 14% after reporting better-than-expected sales. On the other hand, AMC Entertainment fell nearly 14% after revealing plans for additional stock sales. Tesla dropped more than 5% after HSBC lowered its target price.

[Image source=Reuters Yonhap News]

Investors closely watched Chair Powell’s remarks released from 2 p.m., the U.S. Treasury’s 30-year bond auction, and movements in Treasury yields. Powell, speaking at the International Monetary Fund (IMF) conference, said he was "not confident" that the current monetary policy was "sufficiently restrictive" to achieve the 2% inflation target and stated that the Fed "would not hesitate" to raise rates further if necessary.

Despite two consecutive rate hold decisions, Powell confirmed that the option to raise rates remains on the Fed’s table, making it clear that the market’s expectation of an end to rate hikes is premature. Previously, the Fed held rates steady at 5.25-5.5% at the Federal Open Market Committee (FOMC) meeting on the 1st of this month.

Powell positively assessed the recent slowdown in inflation but warned of the risk of misjudgment due to "several months of strong data." He also expressed caution, saying, "The fight to restore price stability has a long way to go," and acknowledged that "there is no guarantee of sustained progress toward the 2% target."

The market interpreted Powell’s remarks as hawkish. The S&P 500 and Nasdaq, which had been on an eight- and nine-day rally respectively until the previous day, extended their declines following Powell’s comments. Although the remarks were not new, disappointment over the 30-year Treasury auction results contributed to market volatility.

Treasury yields surged in the New York bond market. The benchmark 10-year U.S. Treasury yield rose more than 12 basis points to around 4.63%. The 2-year yield, sensitive to monetary policy, surpassed 5% again. Michael Aron of State Street Global Advisors commented, "Volatility in Treasury yields is dominating the stock market." The dollar index, which measures the dollar’s value against six major currencies, rose more than 0.3% to 105.9.

Peter Cardillo, chief market economist at Spartan Capital Securities, said, "(Powell) is taking a hawkish stance again," adding, "Overall, Powell is telling the market not to get too comfortable expecting an end to rate hikes. This is putting downward pressure on the stock market." Meanwhile, Angelo Manolatos, strategist at Wells Fargo Securities, said, "The Fed is in the final stage," and "At this point, his remarks have not changed our view that rate hikes have ended and that rate cuts will begin by mid-next year."

According to the CME FedWatch tool, the federal funds futures market currently prices in an over 85% chance of a rate hold. This is down from the 90% range the previous day. The probability of a "baby step" hike was around 14%, up from 9% before Powell’s remarks were released.

The weekly unemployment data released before the market opened showed that the number of unemployed Americans seeking jobs for more than two weeks increased for the seventh consecutive week. According to the U.S. Department of Labor, continuing claims for unemployment benefits rose by 22,000 to 1,834,000. However, initial claims fell by 3,000 to 217,000, below the Wall Street Journal (WSJ) consensus estimate of 220,000.

International crude oil prices rebounded after three trading days. On the New York Mercantile Exchange, December delivery West Texas Intermediate (WTI) crude closed at $75.74 per barrel, up 41 cents (0.54%) from the previous day.