[New York Stock Market] Major Indices Hit New Highs Again on FOMC Optimism... Micron Surges Over 14%

FOMC Maintains Outlook for Three Rate Cuts This Year
Growing Optimism for Soft Landing of US Economy
Strong Earnings Boost Micron, Leading Semiconductor Stocks Higher

The three major indices of the U.S. New York stock market all closed higher on the 21st (local time), marking the second consecutive day of record highs. The rally, centered on tech stocks, continued as the Federal Reserve (Fed) maintained its forecast for three rate cuts this year and expectations for a soft landing of the U.S. economy increased.

On the day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 269.24 points (0.68%) from the previous trading day to close at 39,781.37, breaking its all-time high. The Dow Jones Industrial Average is now on the verge of reaching a new record of 40,000. The large-cap S&P 500 index rose 16.91 points (0.32%) to 5,241.53, and the tech-heavy Nasdaq index increased 32.43 points (0.2%) to 16,401.84, also surpassing record highs.

By individual stocks, tech stocks, especially semiconductors, surged sharply. Micron jumped 14.13% following strong earnings the previous day, marking its largest gain since November 2011. Nvidia and Intel rose 1.18% and 0.52%, respectively. Reddit, listed on the New York Stock Exchange, soared 48.35% above its IPO price. Apple fell 4.09% after news that the U.S. Department of Justice filed an antitrust lawsuit against it.

[Image source=Yonhap News]

Market expectations for rate cuts acted as a catalyst for the stock market rally.

At the Federal Open Market Committee (FOMC) regular meeting the previous day, the Fed kept the federal funds rate unchanged for the fifth consecutive time at 5.25-5.5% and maintained its forecast for three rate cuts this year. Initially, the market expected the Fed to pivot to two rate cuts this year due to hotter-than-expected inflation, but the Fed stuck to its original forecast of three cuts.

Moreover, when Fed Chair Jerome Powell stated that he would not be swayed by the inflation rise in January and February, the market interpreted this as a dovish (monetary easing-preferred) message and reacted positively. He said, "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 judged that temporary inflation spikes might occur but would not alter the trend of slowing inflation. Powell also said, "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."

Expectations for a rate cut in June have spread rapidly since the FOMC meeting. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on the day priced in over a 70% chance that the Fed will cut rates by 0.25 percentage points at the June FOMC, up significantly from around 60% before the meeting.

Expectations for a soft landing of the U.S. economy are also rising. In the Summary of Economic Projections (SEP) released quarterly the previous day, the Fed raised its GDP growth forecast for this year 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%. The Fed expects solid economic growth and strong employment without significant inflation increases.

Jay Woods, Chief Global Strategist at Freedom Capital Markets, said, "People trust the Fed now, and rate cuts are coming. We are in a good situation, and the market believes in a soft landing. Whatever the Fed says, the market will continue to hear music."

However, some voices caution against excessive expectations for rate cuts. Julie Biel, Portfolio Manager at Cain Anderson Rudnick, said, "We need to recognize that this does not necessarily mean three to four rate cuts," adding, "There is sufficient dissent. The rate-setting range for 2024-2025 remains quite wide."

The U.S. manufacturing indicator released on the day showed strength. According to S&P Global, the U.S. Manufacturing Purchasing Managers' Index (PMI) for March rose to 52.5 from 52.2 in 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 initial jobless claims for the week of March 10-16 were 210,000, slightly below the market expectation of 212,000. It was also lower than the revised 212,000 claims from the previous week. Since mid-September last year, initial jobless claims have hovered around 200,000, a historically low level compared to the pre-COVID-19 pandemic period.

U.S. Treasury yields, sensitive to monetary policy, rose 3 basis points (1bp=0.01 percentage point) from the previous day to 4.64% for the 2-year note. The benchmark 10-year U.S. Treasury yield remained around 4.27%, similar to the previous day.

International oil prices weakened due to a ceasefire consensus between the U.S. and Arab countries over the Gaza Strip and a decline in U.S. gasoline demand. West Texas Intermediate (WTI) crude fell $0.20 (0.3%) to $81.07 per barrel, and Brent crude dropped $0.17 (0.2%) to $85.78 per barrel.