[New York Stock Market] Growing Caution Amid High Price Concerns... Intel and AMD Decline

Breathing Space After FOMC
Focus on February Core PCE Inflation

The three major indices of the U.S. New York stock market all closed lower on the 25th (local time) amid concerns over high valuations following a recent rally.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 39,313.64, down 162.26 points (0.41%) from the previous trading day. The large-cap-focused S&P 500 index fell 15.99 points (0.31%) to 5,218.19, and the tech-heavy Nasdaq index dropped 44.35 points (0.27%) to close at 16,384.47.

By individual stocks, Intel fell 1.74%, and AMD declined 0.57%. Shares dropped following news that China plans to phase out U.S.-made semiconductors such as Intel and AMD from personal computers (PCs) and servers used by government agencies. United Airlines fell 3.4% after reports that U.S. authorities are considering growth curbing measures following recent airline safety incidents. Boeing, which has been embroiled in controversy due to a series of recent accidents involving the 737 model, rose 1.36% on news that CEO and Chairman Dave Calhoun will resign at the end of the year.

The market declined as investors took a breather amid concerns over high valuations following the recent rally. Earlier, the New York stock market rose for two consecutive days on the 20th and 21st after the Federal Reserve (Fed) maintained its forecast for three rate cuts this year at the March Federal Open Market Committee (FOMC) meeting. Although the market closed mixed on the 22nd, concerns over the possibility of prolonged high interest rates led to cautious investor sentiment, resulting in a decline to open the first trading day of the week.

Sam Stovall, Chief Investment Strategist at CFRA Research, analyzed, "The average price-to-earnings ratio (PER) of the S&P is trading at a 33% premium compared to the 20-year average. We are moving away from the peak after the FOMC. The market is becoming increasingly vulnerable to declines."

Jeanne Asseraf, Head of Research and Strategy at BFT IM, predicted, "With few catalysts for market gains and stock valuations too high, risks are becoming visible. The situation is expected to become more complicated in the coming weeks."

Comments from Fed officials on the future path of interest rates released that day were mixed. Austan Goolsbee, President of the Federal Reserve Bank of Chicago, forecasted three rate cuts this year, in line with the FOMC consensus. Goolsbee stated, "We are in a somewhat dark period," but noted that the overall narrative of a continued decline in inflation has not changed. On the other hand, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, reaffirmed his previous forecast of only one rate cut this year. Regarding the reduction in the expected number of rate cuts from two to one, he said, "The goal and reality is that data should guide us," emphasizing that additional confirmation of inflation slowdown indicators is necessary for rate cuts.

As a result, investors' attention is focused on the core Personal Consumption Expenditures (PCE) price index for February, to be released on the 29th. The core PCE price is expected to have risen 0.3% month-over-month in February, down from 0.4% in January. However, the annual increase is projected to remain steady at 2.8%, the same level as January. With the Consumer Price Index (CPI) exceeding expert expectations for two consecutive months in January and February this year, attention is on the PCE price trend. However, since the 29th is Good Friday, a holiday before Easter, market reactions to the inflation data are likely to be observed after the New York stock market opens on the 1st of next month.

Government bond yields are on the rise. The U.S. 10-year Treasury yield, a global benchmark for bond yields, increased by 3 basis points (bp) (1 bp = 0.01 percentage points) to 4.25%, while the 2-year Treasury yield, sensitive to monetary policy, also rose 3 bp to around 4.63%.

International oil prices are rising amid geopolitical tensions in the Middle East and the Russia-Ukraine war. West Texas Intermediate (WTI) crude oil rose $1.25 (1.55%) to $81.88 per barrel, and Brent crude increased $1.21 (1.43%) to $86.04 per barrel.