[New York Stock Market] Powell's "No Rate Cut in March" Dampens Sentiment... Nasdaq Down 2.2%

First FOMC Interest Rate Hold This Year
Powell: "Low Possibility of March Cut"
Decline Centered on Tech Stocks

The three major indices of the U.S. New York stock market all closed lower on the 31st (local time) after Federal Reserve (Fed) Chair Jerome Powell dismissed the possibility of a rate cut in March. As expected, the Fed kept the benchmark interest rate unchanged for the fourth consecutive time at 5.25-5.5%.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 38,150.3, down 371.01 points (0.82%) from the previous day. This was the largest drop since December last year. The large-cap focused S&P 500 index fell 79.32 points (1.61%) to 4,845.65, and the tech-heavy Nasdaq index dropped 345.89 points (2.23%) to 15,164.01. The S&P 500 and Nasdaq indices also recorded their largest declines since September and October of last year, respectively.

The weakness in technology stocks, which had been the biggest beneficiaries of early rate cut expectations, was prominent. Alphabet, Google's parent company, fell 7.35%. Microsoft (MS) dropped 2.69%, and AMD declined 2.54%. Boeing, however, surged 5.29% after posting better-than-expected earnings.

Investors awaited the results of the January Federal Open Market Committee (FOMC) meeting and Chair Powell's press conference, which were released in the afternoon. As expected, the Fed kept the benchmark interest rate unchanged at 5.25-5.5% for the fourth consecutive time. The market, which had been slightly weak while anxiously awaiting the FOMC, deepened its losses after the FOMC and Powell's press conference.

[Image source=Yonhap News]

At the press conference, Chair Powell said, "Based on this meeting, I think the likelihood of reaching a level of confidence to be certain about a rate cut by the March meeting is low," adding, "We need to watch." He stated, "We are confident that inflation is steadily slowing toward the 2% target, but we need greater confidence," and added, "Inflation remains high, and the future path is uncertain. We need evidence to be confident in a sustained slowdown of inflation."

However, the Fed removed the tightening-biased language that had indicated a willingness to raise rates from the policy statement. The phrase "the extent of any additional policy firming," which implied further rate hikes, was deleted.

Chair Powell said, "It is likely that our policy rate has peaked in this tightening cycle," and "If the economy develops gradually as expected, it would be appropriate to lower the policy rate at some point this year." He also hinted that discussions about the timing of rate cuts had taken place among Fed officials. He said, "No member proposed a rate cut, but there were broad and healthy differences of opinion regarding the timing of cuts."

Following the FOMC, the market's expectations for a rate cut in March weakened further. According to the Chicago Mercantile Exchange (CME) FedWatch, the rate futures market reflects a 35.5% chance of a rate cut of 0.25 percentage points or more at the March FOMC after the Fed held rates steady in January. This probability was over 55% in the morning but dropped by 20 percentage points after Powell's press conference.

Employment data released that morning showed signs that the U.S. labor market is cooling. According to U.S. employment data provider Automatic Data Processing (ADP), private sector employment in the U.S. increased by only 107,000 in January compared to the previous month. This is 51,000 fewer than the previous month's increase of 158,000 and falls well short of the market experts' forecast of 150,000. The market is closely watching the nonfarm payrolls and unemployment rate for January, which the Labor Department will release on February 2.

The U.S. 2-year Treasury yield, sensitive to monetary policy, rose to around 4.45% after Powell's press conference but has since fallen to about 4.21%. The U.S. 10-year Treasury yield, a global bond benchmark, dropped from around 3.95% in the morning to about 3.92%. Treasury prices rose after the U.S. Treasury announced its bond issuance plan for the second quarter of this year, stating that it would not increase issuance size for the next few quarters.

International oil prices are weakening due to a contraction in China's manufacturing sector, a major oil importer. West Texas Intermediate (WTI) crude oil is trading at $75.85 per barrel, down $1.97 (2.5%) from the previous close. Brent crude futures are down $1.16 (1.4%) at $81.71.