New York Stock Market Declines Early Ahead of FOMC Minutes... 10-Year Treasury Yield Surpasses 4%

Major indices on the U.S. New York Stock Exchange showed a broad decline in early trading on the 3rd (local time) as investors awaited the minutes of the December Federal Open Market Committee (FOMC) meeting, which had been regarded as dovish (favoring monetary easing). Amid rising Treasury yields, Apple, the largest company by market capitalization that had plunged sharply the previous day, continued its downward trend, negatively impacting overall investor sentiment.

At around 10:23 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was trading down 0.61% from the previous close at around 37,481 points. The S&P 500, which focuses on large-cap stocks, fell 0.67% to 4,710 points, while the tech-heavy Nasdaq index dropped 0.99% to 14,620 points.

Currently, within the S&P 500, technology, materials, consumer discretionary, and industrial sectors are declining, while energy and healthcare sectors are rising. Apple, after a downgrade by Barclays the previous day which led to a drop of over 3%, continued to fall by around 1% on this day. Tesla fell more than 4%. Semiconductor stocks were also weak. Nvidia, which benefited significantly from artificial intelligence (AI) last year, dropped over 1%, and AMD slid by over 3%. Coinbase fell more than 4%, and Marathon Digital dropped over 2%. Blooming Brands, the parent company of Outback Steakhouse, rose more than 2% following news of new board members.

[Image source=AFP Yonhap News]

Investors are closely watching the direction of large-cap stocks including Apple and movements in Treasury yields as they await the release of the December FOMC minutes later in the afternoon. Earlier, the Fed had kept the benchmark interest rate unchanged for the third consecutive time at the December regular FOMC meeting and hinted through a new dot plot that three rate cuts could occur this year. Particularly, since Fed Chair Jerome Powell confirmed that discussions on rate cuts had begun in earnest at the December meeting, the key issue is what specific details were exchanged regarding the conditions for cuts. The Fed officials’ assessments of inflation and the labor market, which are presumed to be conditions for rate cuts, are also attracting attention.

Currently, the market continues to expect a rate cut as early as March. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability that the Federal Reserve will cut rates by at least 0.25 percentage points in March exceeds 70% in the federal funds (FF) futures market. The outlook for a rate hold stands at around 27%. However, this is an increase from the previous session (21%) and a week ago (9.8%), indicating a strengthened expectation for a hold. This reflects some caution that the market’s optimism based on rate cut expectations may be excessive. On Wall Street, there is widespread assessment that if discussions on rate cuts in the December FOMC minutes fall short of market expectations, the resulting gap could trigger a sharp decline in the New York stock market.

Thomas Barkin, president of the Federal Reserve Bank of Richmond, said in a speech that the speed and timing of rate cuts this year depend on inflation and economic outlooks. He stated, "Forecasting is difficult, and conditions are always changing," and predicted that the Fed’s decisions will change accordingly.

This week, a slew of employment-related economic indicators, including the U.S. Department of Labor’s nonfarm payroll report and the ADP private employment report, are scheduled to be released. Through these, investors are expected to gauge the pace of the Fed’s rate cuts. According to the Job Openings and Labor Turnover Survey (JOLTs) report released by the U.S. Department of Labor this morning, job openings in November last year were 8.79 million, down 60,000 from the revised previous month. This is the lowest level in two years and eight months since March 2021 but aligns with Wall Street expectations.

Meanwhile, Apple, the largest company by market capitalization, showing a decline for two consecutive days, is also fueling profit-taking pressure, acting as a negative factor across the market on this day.

In the New York bond market, Treasury yields rebounded. The benchmark 10-year U.S. Treasury yield briefly surpassed the 4.0% level during the session. The 2-year yield, which is sensitive to monetary policy, also rose to around 4.38%. The dollar index, which measures the value of the U.S. dollar against six major currencies, rose more than 0.4% to around 102.6.

European stock markets also declined. Germany’s DAX index fell about 1.7%. France’s CAC index and the UK’s FTSE index dropped 1.98% and 0.73%, respectively.