[New York Stock Market] Mixed Close Following Powell's Indication of 'Delayed Rate Cut'... US 2-Year Treasury Yield Surpasses 5%

Powell "It Will Take a Long Time to Be Confident in Inflation Slowdown"
Seems to Have Withdrawn Stance on Three Rate Cuts This Year
US Treasury Yields Rise...Dollar Value Increases

The three major indices of the New York stock market closed mixed on the 16th (local time). The S&P 500 index ended the day lower after Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), hinted at a delay in interest rate cuts due to a slowdown in inflation easing. The U.S. 2-year Treasury yield surpassed the 5% mark, and the dollar showed strength.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 63.86 points (0.17%) from the previous trading day to close at 37,798.97. The large-cap-focused S&P 500 index fell 10.41 points (0.21%) to 5,051.41, and the tech-heavy Nasdaq index dropped 19.77 points (0.12%) to close at 15,865.25.

By individual stocks, UnitedHealth rose 5.22% after its first-quarter sales exceeded expectations. Morgan Stanley also rose 2.53% following better-than-expected earnings. On the other hand, Bank of America (BoA) fell 3.52% after announcing declines in sales and profits. Tesla dropped 2.71% after announcing the day before a plan to cut 10% of its global workforce due to sluggish electric vehicle sales.

Chairman Powell indicated that the timing of interest rate cuts would be later than the Fed's initial expectations. At the Washington Forum on the Canadian economy held in Washington D.C., he stated, "Recent data has not clearly given greater confidence that inflation is making progress toward the Fed's target." He added, "Instead, it suggests that it may take longer than expected to achieve such confidence," and said, "Given the current strength of the labor market and the inflation progress so far, it is appropriate to allow restrictive policies time to take effect."

Powell mentioned, "I believe we are in a good policy position to respond to the risks we face." However, he added that the Fed is prepared to lower rates if the economy slows sharply.

Powell's remarks came a day after the release of the March retail sales data. According to the U.S. Department of Commerce, retail sales last month increased by 0.7% compared to the previous month, exceeding market expectations of 0.4%. The previously released U.S. CPI also exceeded forecasts for three consecutive months through March. The core CPI rose 3.8% year-over-year in March, surpassing the market forecast of 3.7%. With a robust labor market supporting consumption and increasing the risk of inflation becoming entrenched, Powell signaled a shift in the Fed's stance from previously dovish (favoring monetary easing) to hawkish (favoring monetary tightening). The Fed had maintained a forecast of three rate cuts within the year at the March Federal Open Market Committee (FOMC) meeting but suggested a retreat from that position with his remarks.

Cash Bozchanski, Chief Economist at Nationwide Mutual Insurance, evaluated, "The Fed's confidence has wavered," and said, "Powell confirmed and emphasized that the market is already pricing in economic indicators."

Quincy Crosby, Chief Global Strategist at LPL Financial, diagnosed, "Chairman Powell moved more decisively in a hawkish direction," adding, "This is unfavorable for the stock market, but the market received the message."

Companies continue to report earnings surprises. According to market research firm FactSet, less than 10% of companies in the S&P 500 have reported earnings so far, and among them, four out of five have exceeded market expectations.

However, the rise in Treasury yields due to the delayed rate cut outlook weighed on the indices. The 2-year U.S. Treasury yield, sensitive to monetary policy, surpassed the 5% mark immediately after Powell's remarks but is currently at 4.97%, up 4 basis points (1 bp = 0.01 percentage points) from the previous day. The 10-year U.S. Treasury yield, a global bond yield benchmark, is trading around 4.67%, up 5 basis points.

Concerns over direct clashes between Iran and Israel are also weighing on investor sentiment. The U.S. has repeatedly urged Israel to exercise restraint to prevent escalation, and Iran has stated it will not carry out additional attacks as long as Israel does not retaliate, somewhat easing fears of expanded conflict, but unease remains. Israel is reportedly focusing on painful retaliation against Iran while avoiding full-scale war.

International oil prices closed slightly lower. West Texas Intermediate (WTI) crude oil fell $0.05 (0.1%) from the previous trading day to $85.36 per barrel, and Brent crude, the global oil price benchmark, dropped $0.80 (0.1%) to $90.02 per barrel.

The dollar is strong. The dollar index, which measures the value of the dollar against six major currencies, was up 0.19% from the previous trading day at 106.195 as of 4:42 p.m.