[New York Stock Market] Declines on Fed Hawkish Remarks... Dow Down 0.62%

The three major indices of the U.S. New York stock market all closed lower on the 16th (local time) near the flat line. The benchmark 10-year U.S. Treasury yield surpassed the 4% level again, and hawkish remarks from Federal Reserve (Fed) officials added downward pressure on the market. This week, corporate earnings and consumer indicators that can gauge the economic trend are also scheduled to be released one after another.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 37,361.12, down 231.86 points (0.62%) from the previous session. The S&P 500 index, focused on large-cap stocks, fell 17.85 points (0.37%) to 4,765.98, and the Nasdaq index, centered on tech stocks, closed down 28.41 points (0.19%) at 14,944.35.

In the S&P 500 index, all 10 sectors except for technology-related stocks declined. Energy-related stocks notably suffered the largest losses. Apple fell more than 2% amid concerns over slowing iPhone sales following news of discounts in the Chinese market. Tesla dropped over 1% after CEO Elon Musk announced the desire for 25% voting rights the previous day. Spirit Airlines plummeted nearly 50% as a U.S. federal court blocked JetBlue's acquisition. Nvidia, which is set to announce quarterly earnings on the 30th, rose 3%. ADM also gained 8% on optimism about semiconductor demand.

[Image source=AFP Yonhap News]

Investors closely watched last week's late-quarter corporate earnings led by major banks, movements in Treasury yields and oil prices, and Fed officials' remarks ahead of this week's scheduled economic data releases such as retail sales. Christopher Waller, a Fed governor known as a prominent hawk within the Fed, dampened market expectations for a rate cut in March by stating, "There is no reason to lower rates quickly in this cycle."

Speaking at an event hosted by the Brookings Institution, he noted that although the U.S. economy recently shows solid growth and employment, inflation is slowing, describing the situation as "almost as good as it gets." However, he added, "It is questionable whether this will continue," emphasizing that Fed officials want to see additional evidence that inflation is on track to meet the 2% target before cutting rates. He further stated, "In many previous cycles, rate cuts were relatively quick and large, but in this cycle, there is no reason to lower rates quickly."

This immediately heightened concerns that high interest rates might persist longer than expected. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the futures market currently prices about a 65% chance that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in March after holding steady in January. This probability weakened from around 72% before Waller's remarks were made public. Krishna Guha, an analyst at investment bank Evercore ISI, said in an investor memo, "We interpret Waller's remarks as indicating he does not expect a rate cut in March," adding, "This aligns with our forecast that the first rate cut will occur in May or June."

Earlier, similar remarks dampening expectations for early rate cuts came from officials in Europe. Fran?ois Villeroy de Galhau, a policymaker at the European Central Bank (ECB) attending the World Economic Forum (WEF, Davos Forum) annual meeting in Davos, Switzerland, said, "It is too early to declare victory. It is not over yet." Ipek Ozkardeskaya, chief analyst at Swissquote, commented, "In the first quarter of this year, central banks will realize it is too early to cut rates," adding, "In the U.S., resilient growth, a strong labor market, and fiscal spending leading up to the presidential election mean there is no need for a Fed rate cut in March."

Treasury yields continued to rise as expectations for early rate cuts retreated. In the New York bond market, the 10-year yield rose to around 4.06%, and the 2-year yield, which is sensitive to monetary policy, increased to about 4.22%. The dollar index, which measures the value of the U.S. dollar against six major currencies, moved above 103.3, up more than 0.9%.

Investors' attention is focused on this week's releases of retail sales and the Fed's Beige Book economic report. The retail sales indicator is considered a pillar accounting for two-thirds of the U.S. real economy and a comprehensive gauge of economic health. If consumer spending in December last year remains robust, it could strengthen hawkish voices advocating for maintaining high interest rates for the time being. Speeches by Fed officials such as John Williams, president of the New York Federal Reserve Bank (the third-ranking Fed official), and Raphael Bostic, president of the Atlanta Fed, are also scheduled this week. Previously, Bostic stated that rate cuts might only be possible in the third quarter.

Corporate earnings announcements continue. Late last week, JP Morgan Chase and Citi reported mixed results. Before the market opened on the day, Goldman Sachs and Morgan Stanley each released earnings that exceeded expectations. The Empire State Manufacturing Index, released by the New York Fed on the day, recorded -43.7, the lowest since May 2020.

International oil prices slightly declined amid ongoing Middle East tensions and a stronger dollar. On the New York Mercantile Exchange (NYMEX), the February delivery West Texas Intermediate (WTI) crude oil price closed at $72.40 per barrel, down 28 cents (0.39%) from the previous day.