[New York Stock Market] Relief on 'Dove Powell'... Mixed Close Near Flat

Powell Dismisses Rate Hike Possibility, Leading to Rise in 3 Major Stock Markets
Late Sell-Off in Tech Stocks Causes S&P and Nasdaq to Fall
US Treasury Yields Drop, Stabilizing Financial Markets

The three major indices of the U.S. New York stock market closed mixed on the first trading day of the month, January 1 (local time). Investor concerns about strong inflation eased somewhat as Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), dismissed the possibility of a rate hike. Thanks to the 'Powell effect,' all three major indices maintained intraday gains, but technology stocks fell near the close, causing the S&P 500 and Nasdaq indices to finish slightly lower.

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On the day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 87.37 points (0.23%) from the previous trading day to close at 37,903.29. The large-cap-focused S&P 500 index fell 17.3 points (0.34%) to 5,018.39, and the tech-heavy Nasdaq index dropped 52.34 points (0.33%) to 15,605.48.

Following the Federal Open Market Committee (FOMC) meeting and Powell's press conference, the Dow Jones Industrial Average extended its gains, while the previously declining S&P 500 and Nasdaq indices reversed to rise. However, technology stocks declined, causing the indices to give back gains or turn negative just before the close. Among individual stocks, U.S. semiconductor company AMD fell 8.95% after reporting earnings in line with market expectations. Super Micro Computer plunged 14.03% after reporting earnings below analyst forecasts. Qualcomm fell 1.1% during regular trading but rose more than 4% after hours following its earnings announcement. Qualcomm reported second-quarter fiscal year revenue of $9.39 billion and adjusted earnings per share (EPS) of $2.44, surpassing LSEG analyst estimates of $9.34 billion and $2.32, respectively.

At the third FOMC meeting of the year, the Fed held the federal funds rate steady for the sixth consecutive time at 5.25-5.5%. The Fed's policy statement included a new phrase noting a lack of progress in slowing inflation. The Fed assessed that "recent months have shown insufficient additional progress toward reducing inflation to the 2% target."

The market focused on Powell's remarks during the press conference immediately following the FOMC statement release. Powell said, "The likelihood of the next policy rate move being an increase is low," adding, "I want to say it is very unlikely." When asked if rate hikes were discussed, he replied, "There was policy discussion about maintaining the current restrictive stance," indicating that no discussions about hikes took place.

Powell viewed inflation itself as stronger than expected. He said, "Inflation remains too high, and we cannot be confident about progress toward a decline," adding, "We expect inflation to come down this year, but the data have weakened that confidence." He further noted, "It will take longer than previously expected to gain confidence that rate cuts are warranted."

Markets, which had anticipated hawkish (monetary tightening-favoring) messages including the possibility of rate hikes due to recent inflation strength, interpreted Powell's comments as much more dovish (monetary easing-favoring) than initially expected.

Chris Zaccarelli, Chief Investment Officer (CIO) of Independent Advisor Alliance, analyzed, "Powell tried to adopt a dovish stance," noting, "He dismissed forecasts that the Fed would shift from rate cuts to hikes at every turn, examining data ranging from higher-than-expected inflation to lower-than-expected economic growth."

An economist at Renaissance Macro's Rayli Investment said, "Powell believes policy is restrictive," diagnosing, "If policy is restrictive, they are more concerned about the risk of growth slowing than the risk of inflation rising."

U.S. Treasury yields also fell sharply. The 2-year Treasury yield, sensitive to monetary policy, briefly exceeded 5% in the morning but is currently down 9 basis points (bp) from the previous day at 4.95%. The 10-year Treasury yield, a global bond yield benchmark, declined 6 bp to 4.62%.

This morning, employment data that could influence the Fed's future rate path were released, but the two indicators diverged, making it difficult to find a clear direction.

First, U.S. job openings in March hit a three-year low, signaling a cooling labor market. According to the U.S. Department of Labor's March Job Openings and Labor Turnover Survey (JOLTS), job openings last month totaled 8.488 million, the lowest in three years, below both the previous month's 8.813 million and analyst expectations of 8.68 million. The voluntary quit rate was 2.1%, the lowest in 3 years and 7 months since August 2020. The hiring rate also fell to 3.5%, the lowest since the COVID-19 pandemic.

On the other hand, conflicting data showed the U.S. labor market remains robust. According to the U.S. private labor market research firm ADP's employment report, private sector job growth in April was 192,000, exceeding market expectations of 179,000.

The market is awaiting the U.S. Department of Labor's April employment report, which provides a more accurate picture of employment. Nonfarm payrolls for April, to be released on the 3rd, are expected to increase by 243,000, a significant decline from March's 303,000. The April unemployment rate is expected to remain steady at 3.8%.

International crude oil prices fell more than 3% amid concerns over weak oil demand and hopes for a ceasefire agreement between Israel and the Palestinian militant group Hamas. West Texas Intermediate (WTI) crude closed at $79 per barrel, down $2.93 (3.6%) from the previous day, while Brent crude, the global oil price benchmark, fell $2.89 (3.4%) to $83.44 per barrel.