New York Stock Market Rises on Dovish FOMC... Improvement in US Manufacturing Sector

Fed Maintains Outlook for Three Rate Cuts This Year
US Manufacturing PMI 52.5 'Exceeds Expectations'

The three major indices of the U.S. New York stock market were rising in early trading on the 21st (local time). Investor sentiment was stimulated as the U.S. Federal Reserve (Fed) maintained its forecast for three interest rate cuts this year at the Federal Open Market Committee (FOMC) meeting the day before. The U.S. manufacturing sector also showed signs of rapid recovery.

As of 9:53 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was up 0.55% from the previous close, trading at 39,729.74. The S&P 500, which is centered on large-cap stocks, rose 0.48% to 5,249.86, and the tech-heavy Nasdaq index increased 0.72% to 16,486.78. All three major indices, which hit record highs following the FOMC meeting the previous day, continued their early session gains.

The Fed kept the federal funds rate unchanged for the fifth consecutive time at 5.25-5.5% following the regular FOMC meeting the day before. Since the market had already anticipated a rate hold, the key focus of this FOMC was the dot plot showing rate projections. The Fed maintained the year-end rate forecast at 4.6% (median), unchanged from before. This signaled the possibility of three 0.25 percentage point rate cuts within the year from the current 5.25-5.5% level. Initially, the market expected the Fed to pivot to two rate cuts this year due to hotter-than-expected inflation, but the Fed stuck with its original forecast of three cuts.

Fed Chair Jerome Powell recently commented on inflation, saying, "The overall story that inflation is gradually slowing toward 2% along a sometimes bumpy path has not changed," and added, "We continue to see good progress in reducing inflation." He acknowledged that temporary inflation spikes may occur but judged that the trend of slowing inflation remains intact. He also stated, "It is likely that the policy rate has peaked in this cycle," and "It would be appropriate to start reversing policy restraint at some point this year."

The Fed also signaled the possibility of a soft landing for the U.S. economy this year. In the Summary of Economic Projections (SEP) released quarterly, the GDP growth forecast for this year was raised from 1.4% to 2.1%. The unemployment rate forecast was lowered from 4.1% to 4.0%. The core Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, was revised up from 2.4% to 2.6%. This suggests that the Fed expects solid economic growth and strong employment without significant inflation increases.

Expectations for a rate cut in June have grown since the March FOMC. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on the day priced in over a 70% chance of a 0.25 percentage point rate cut at the June FOMC, up significantly from around 60% just before the FOMC meeting.

Daniel Gerard, Senior Multi-Asset Strategist at State Street Corporation, analyzed, "The Fed still has a bias toward easing monetary policy this year."

Chris Zaccarelli, Chief Investment Officer (CIO) at Independent Advisor Alliance, said, "The 'no news is good news' press conference was a green light for the market to continue rising," and predicted, "The Fed will not hinder the bull market."

The U.S. manufacturing sector also showed rapid improvement. The S&P Global U.S. Manufacturing Purchasing Managers' Index (PMI) for March was 52.5, up from 52.2 the previous month, exceeding the expert forecast of 51.8. A manufacturing PMI above 50 indicates expansion, while below 50 indicates contraction.

The strong employment market continued. The U.S. Department of Labor reported that new jobless claims for the week of March 10-16 were 210,000, slightly below the market expectation of 212,000. This was also lower than the revised 212,000 claims from the previous week. New jobless claims, which reflect corporate layoffs, have hovered around 200,000 since mid-September last year. Compared to the pre-COVID-19 pandemic period, this remains historically low.

This week, corporate earnings announcements will continue. After the market closes on the day, FedEx and Nike will release their earnings reports.

By individual stocks, U.S. semiconductor company Micron Technology surged 13.69% on strong earnings. Nvidia and Intel rose 0.78% and 2.32%, respectively. Five Below, known as the U.S. equivalent of Daiso, fell 12.21% following disappointing earnings.

U.S. Treasury yields were steady. The 2-year Treasury yield, sensitive to monetary policy, was at 4.61%, and the benchmark 10-year Treasury yield was at 4.27%, both moving at levels similar to the previous day.

International oil prices were slightly down. West Texas Intermediate (WTI) crude fell $0.30 (0.4%) to $80.97 per barrel, and Brent crude dropped $0.31 (0.4%) to $85.64 per barrel.