[New York Stock Market] Pause Ahead of Employment Data... Nasdaq Down 0.84%

The three major indices of the U.S. New York stock market all closed lower on Monday, the 4th (local time). Following the November rally, the market entered the full-scale December weekly trading session, showing a kind of "breather" phase as concerns about peak levels emerged ahead of this week's employment data releases. Amid some Wall Street voices pointing out that market expectations for interest rate cuts are excessive, sectors sensitive to interest rates, such as technology and telecommunications stocks, saw confirmed declines.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 36,204.44, down 41.06 points (0.11%) from the previous session. The large-cap S&P 500 index fell 24.85 points (0.54%) to 4,569.78. The tech-heavy Nasdaq index ended the day down 119.54 points (0.84%) at 14,185.49.

By sector, technology and telecommunications-related stocks in the S&P 500 fell more than 1.3%. Microsoft, Google Alphabet, Tesla, and Amazon all dropped more than 1%. Nvidia, a leading artificial intelligence (AI) stock, fell over 2%. Alaska Airlines plunged more than 14% after announcing the acquisition of competitor Hawaiian Airlines for $1.9 billion. On the other hand, Coinbase and MicroStrategy rose by 5% and 6%, respectively, on Bitcoin's strength. Uber rose more than 2% on news of its inclusion in the S&P 500. Spotify gained over 7% following news of laying off 17% of its staff.

[Image source=Reuters Yonhap News]

Investors showed cautious trading as they monitored key variables that could affect the Federal Reserve's (Fed) monetary policy and the year-end Santa rally. Tom Heinlein, Chief Investment Strategist at US Bank Asset Management, said, "The word for today is digestion," noting, "The sectors that declined today have led the market for the past 11 months." The market, which had rallied for five consecutive weeks, is taking a kind of breather, which explains the confirmed decline today. Tony Dwyer, Chief Strategist at Canaccord Genuity, said, "There is a kind of calming down after the rally."

Earlier in November, the three major New York stock indices rallied 8-10% amid heightened expectations for interest rate cuts. Last week's remarks by Fed Chair Jerome Powell that "discussions about rate cuts are premature" did not shake market expectations for a pivot. However, voices warning that market expectations for rate cuts are excessive are growing louder. Goldman Sachs recently recommended option strategies, stating that the market's expectations for rate cuts next year are overly priced. Pravin Kothari, a Goldman Sachs strategist, pointed out, "The market is reaching the limit of how much it can price in rate cuts without considering the real possibility of a recession in the short term," criticizing excessive optimism.

According to the CME FedWatch tool, as of this afternoon, federal funds futures market prices reflect a more than 60% chance of a 0.25 percentage point or greater rate cut by the Fed in March next year, and more than 87% chance by May next year. Accordingly, the prevailing view is that the current U.S. interest rate of 5.25-5.5% will fall below 4.00-4.25% by the end of next year. However, Goldman Sachs forecasts that the Fed's rate cut moves will only begin in earnest in the fourth quarter of next year, with total cuts amounting to about 0.25 percentage points for the year.

Investors are focusing on the dot plot and Fed Chair Powell's press conference following the Federal Open Market Committee (FOMC) meeting on December 12-13. It is expected that concrete hints about the timing and pace of future rate cuts will be found there. Vincent Reinhart, Chief Economist at Dreyfus and Mellon and a former Fed official, said, "They (the Fed) will have an awkward time in December," noting that Fed officials do not want the message that rate hikes are over to be interpreted as a signal that rate cuts are needed. However, renowned economist Jeremy Siegel appeared on CNBC's Squawk Box this morning, arguing that "given the flexibility of recent indicators over the past four weeks, rate cuts should be part of the discussion at the December meeting."

Ahead of the December FOMC, employment data releases that could impact Fed monetary policy are scheduled this week. The October Job Openings and Labor Turnover Survey (JOLTs) report will be released on the 5th, the November ADP Employment Report on the 6th, the November Challenger Job Cut Report on the 7th, and the November Nonfarm Payrolls Report on the 8th. If signs of easing are reconfirmed in the labor market following inflation, expectations for rate cuts next year could be further strengthened. Additionally, on the 6th, CEOs of eight major U.S. banks, including JPMorgan Chase, are expected to appear before the Senate Banking Committee hearing to provide economic assessments.

In the New York bond market, Treasury yields rose. The benchmark 10-year U.S. Treasury yield climbed to around 4.25%. The 2-year yield, sensitive to monetary policy, rose to about 4.63%. The dollar index, which measures the value of the dollar against six major currencies, moved above 103.6, up more than 0.3%. Bitcoin, which previously surpassed the $40,000 mark, jumped nearly 5%, continuing its strength today.

International crude oil prices closed lower amid concerns over demand due to the global economic slowdown. At the New York Mercantile Exchange, January delivery West Texas Intermediate (WTI) crude oil prices fell $1.03 (1.4%) from the previous day to close at $73.04.