New York Stock Market Rebounds on Strong Earnings Despite Hawkish Powell

Calming of Government Bond Yields... Decline in Dollar Value
Fed Beige Book, Monitoring Officials' Remarks

The three major indices of the U.S. New York stock market showed an upward trend in the early trading session on the 17th (local time). After Federal Reserve (Fed) Chairman Jerome Powell hinted at a delay in interest rate cuts the previous day, the market, which had closed mixed, is attempting a rebound supported by strong corporate earnings.

As of 9:50 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was trading at 37,996.2, up 0.52% from the previous close. The large-cap-focused S&P 500 index rose 0.4% to 5,071.84, and the tech-heavy Nasdaq index was up 0.35% at 15,920.98.

By individual stocks, United Airlines rose 11.95% following earnings that exceeded expectations. J.B. Hunt Transport Services fell 7.6% after releasing earnings below market forecasts. Tesla was down 1.17%. On the day, Tesla announced via proxy documents that it would hold a shareholder vote to reapprove a $56 billion (approximately 77.6 trillion won) compensation package for CEO Elon Musk, which was invalidated earlier this year by a Delaware court.

Following Powell’s remarks the previous day, which effectively formalized the Fed’s delay in cutting interest rates, the market is focusing on corporate earnings as the next catalyst for a rally. Leonardo Pellandini, an equity strategist at Julius Baer Bank, analyzed, "This can be used as an opportunity to gradually increase exposure to cyclical stocks in anticipation of a new economic cycle unfolding from the second half of this year."

Chairman Powell indicated the previous day that inflation was stronger than expected, suggesting a delay in the timing of interest rate cuts. Just a month ago, he mentioned that the timing was "not far off," but recent Consumer Price Index (CPI) data exceeding expectations for three consecutive months shifted his stance toward a more hawkish (monetary tightening-preferred) position.

At the Washington Forum on the Canadian economy held in Washington D.C. the previous day, he stated, "Recent data has not clearly given greater confidence that inflation is making progress toward the Fed’s goal." He added, "Instead, it suggests that achieving such confidence may take longer than expected," and explained, "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 emphasized that if price pressures persist, the Fed can keep rates "as long as necessary," and said, "We believe we are in a good policy position to respond to the risks we face."

The market interprets the Federal Open Market Committee (FOMC) as having revised its dot plot, which previously projected three rate cuts this year. According to the Wall Street Journal (WSJ), Wall Street has mostly withdrawn its June rate cut expectations and now anticipates only one to two rate cuts this year. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on the day reflected a 43% probability of a rate cut of at least 0.25 percentage points at the July FOMC meeting and about a 68% chance at the September meeting.

Ross Mayfield, an investment strategy analyst at Baird, diagnosed, "The main headwind is a hawkish repricing of Fed expectations," adding, "The market has reached a point where it questions whether there will be any rate cuts in 2024."

The market is awaiting the release of the Fed’s Beige Book, a report on economic conditions, scheduled for the afternoon. Remarks from Loretta Mester, President of the Federal Reserve Bank of Cleveland, and Michelle Bowman, Fed Governor, are also planned.

Investors are also closely watching the direct conflict and potential escalation between Iran and Israel.

Bond yields, which surged the previous day, have calmed. The U.S. 10-year Treasury yield, a global bond yield benchmark, fell 3 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.62%, while the 2-year Treasury yield, sensitive to monetary policy, remained around 4.95%, similar to the previous day.

International oil prices are declining. The increase in U.S. crude oil inventories, weak Chinese economic indicators, and expectations of demand slowdown due to delayed Fed rate cuts overlapped. West Texas Intermediate (WTI) crude oil fell $0.69 (0.81%) to $84.67 per barrel, and Brent crude, the global oil price benchmark, dropped $0.77 (0.86%) to $89.25.

The dollar is weakening. The dollar index, which measures the value of the dollar against six major currencies, was down 0.15% from the previous trading day at 105.91 as of 9:48 a.m.