[New York Stock Market] New York Stock Market Falls After Rate Cut Expectations Retreat... Nasdaq Down 1.18%

The three major indices of the U.S. New York stock market all closed lower on the 3rd (local time). The decline in the stock price of Apple, the largest by market capitalization, contributed to a notable weakness particularly among technology stocks. The minutes of the December Federal Open Market Committee (FOMC) meeting released that day also appeared to dampen the market's 'early rate cut expectations' as they contained no specific discussions on timing or conditions related to rate cuts.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 37,430.19, down 284.85 points (0.76%) from the previous session. The S&P 500, focused on large-cap stocks, fell 38.02 points (0.8%) to 4,704.81, and the Nasdaq, centered on technology stocks, dropped 173.73 points (1.18%) to 14,592.21.

Among the S&P 500 sectors, all eight sectors except energy, utilities, and telecommunications showed declines. In particular, real estate stocks fell more than 2%. Consumer discretionary, technology, industrials, and materials stocks also dropped more than 1%. Apple, which plunged over 3% following a downgrade by Barclays the previous day, closed slightly lower again. Tesla, whose Q4 deliveries fell short of China's BYD, dropped more than 4%. Leading semiconductor stocks such as Nvidia, Intel, AMD, and Qualcomm all declined between 1% and 2%. Xerox fell 12% after announcing a workforce reduction plan. On the other hand, energy stocks like Chevron rose as international oil prices surged.

[Image source=AFP Yonhap News]

Investors continued to watch the direction of large technology stocks like Apple from the previous day, while also monitoring the December FOMC minutes released that afternoon, comments from Fed officials, and movements in Treasury yields. According to the minutes of the December FOMC regular meeting, nearly all participants indicated that lowering interest rates by the end of 2024 would be appropriate. The minutes stated, "Participants viewed the policy outlook as suggesting that interest rates were at or near the peak of this tightening cycle."

However, it was confirmed that there was no specific discussion about rate cuts, which the market had expected, during the December meeting. Participants agreed that due to unusually high uncertainty, the actual path of monetary policy could vary depending on economic conditions. They also emphasized the importance of cautious decision-making and a data-dependent approach in the monetary policy process. Some attendees argued that rates might need to remain at the current level longer than expected from the previous meeting. Hawkish remarks suggesting that additional rate hikes might be necessary depending on economic changes were also made.

This aligns with remarks made that day by Thomas Barkin, President of the Federal Reserve Bank of Richmond, who stated that this year's rate adjustments depend on inflation and other economic indicators. In a speech, Barkin acknowledged that most officials expect rate cuts within the year but said that confidence in inflation and economic outlook "will determine the pace and timing of rate adjustments." He also expressed caution, stating, "The possibility of further rate hikes remains on the table."

As a result, disappointment spread that rate cuts would not occur as quickly as the market expected, continuing the stock market's downward trend. Economic media outlet CNBC reported, "Investors appear to have sold off technology stocks, which surged last year, to realize profits while expecting monetary easing in 2024," adding, "Uncertainty about when the Fed will start cutting rates has dampened investor enthusiasm."

Currently, the market still largely expects rate cuts as early as March. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability that the Fed will cut rates by at least 0.25 percentage points in March exceeds 70%. The outlook for rate freezes stands at around 29%, which has strengthened compared to the single-digit levels a week ago and the previous session. This is interpreted as reflecting some caution that market optimism based on rate cut expectations is excessive. Wall Street has long warned that if discussions about rate cuts at the December FOMC fall short of market expectations, the resulting gap could trigger a sharp drop in the New York stock market.

This week, a large number 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 reassess the pace of Fed rate cuts. According to the Job Openings and Labor Turnover Survey (JOLTs) report released that morning by the U.S. Department of Labor, 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.

In the New York bond market, the 10-year U.S. Treasury yield, which briefly surpassed 4% during the session, fell back to around 3.91%. The 2-year yield, sensitive to monetary policy, rose slightly to about 4.33%. The dollar index, which measures the value of the dollar against the currencies of six major countries, rose more than 0.2% to 102.4.

Oil prices turned upward after five trading days as concerns about Middle East instability rose due to bombings in Iran. On the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) crude oil for February delivery closed at $72.70 per barrel, up $2.32 (3.30%) from the previous day.