[New York Stock Market] US 2-Year Treasury Yield Nears 5% Amid Fed Hawkish Remarks... Mixed Close

Fed Officials Continue Hawkish Remarks
New York Fed President "Rate Hike Possible"

The three major indices of the New York stock market closed mixed on the 18th (local time). Market caution increased as Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), effectively hinted at a delay in interest rate cuts, and a Fed official stated that if necessary, the option to raise rates could be taken. The 2-year Treasury yield, which is sensitive to monetary policy, approached the 5% level.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 37,775.38, up 22.07 points (0.06%) from the previous trading day. The large-cap-focused S&P 500 index fell 11.09 points (0.22%) to 5,011.12, and the tech-heavy Nasdaq index dropped 81.87 points (0.52%) to 15,601.5. This marked the fifth consecutive trading day of declines for both the S&P 500 and Nasdaq indices.

Within the Fed on that day, remarks were made suggesting the possibility of a rate hike.

John Williams, President of the New York Federal Reserve Bank, said, "Interest rates are positioned to move gradually toward our target," and added, "I do not feel any urgency to lower rates at all." When asked about the possibility of a rate hike, he responded that it is not the base scenario but could be possible depending on economic data. Additionally, Raphael Bostic, President of the Atlanta Fed, mentioned that lowering rates by the end of the year would not be appropriate. Following Chairman Powell’s effective indication of a delay in rate cuts on the 16th, Fed officials have consecutively made statements supporting this, reaffirming a hawkish (monetary tightening preference) stance.

As a result, Treasury yields rose, putting pressure on the indices. The 2-year U.S. Treasury yield, sensitive to monetary policy, rose 5 basis points (1bp = 0.01 percentage points) to 4.99%, and the 10-year U.S. Treasury yield, a global bond yield benchmark, moved around 4.63%, up 5 basis points from the previous trading day.

Andrew Brenner, strategist at NetAlliance Securities, said, "The remarks from Fed officials are making us increasingly uneasy," adding, "If the 2-year U.S. Treasury yield surpasses 5%, the next level will be 5.2%."

Some speculate that the Fed may not cut rates this year.

Daniel Pinto, President of JP Morgan, predicted, "It will take more time before the Fed lowers rates," and added, "Given that inflation remains high, the Fed may not cut rates throughout this year."

The number of new unemployment claims released that morning also showed a still robust labor market. According to the U.S. Department of Labor, new unemployment claims for the week of April 7?13 totaled 212,000. This was slightly below the expert forecast of 215,000 and the same as the previous week’s 212,000. Compared to the pre-COVID-19 pandemic period, this remains a record low level. The Department of Labor assessed that companies are still reluctant to lay off workers. The Fed is monitoring related indicators, viewing an overheated labor market as a potential driver of inflation.

Amid growing uncertainty over monetary policy, the market is pinning hopes on corporate earnings. According to market research firm FactSet, over 11% of companies in the S&P 500 index have reported earnings, and among them, 72% have exceeded expert expectations.

The global equity strategist at Goldman Sachs Group analyzed, "The likelihood of a boost from the expected rate cuts is low," adding, "This is causing indigestion, so going forward, earnings will become truly important."

By individual stocks, Netflix is down 0.41% in after-hours trading despite reporting earnings that exceeded market expectations after the close. Taiwan semiconductor company TSMC fell 4.86% despite achieving an earnings surprise in Q1 this year. U.S. Micron dropped 3.78% despite news of receiving $6.1 billion (about 8.4 trillion won) in semiconductor subsidies from the Department of Commerce. Blackstone fell 2.33% on news of a dividend cut.

International oil prices closed flat. West Texas Intermediate (WTI) crude oil rose $0.04 to $82.73 per barrel, while Brent crude, the global oil price benchmark, fell $0.18 to $87.11 per barrel.