[New York Stock Market] Decline Despite 'Cheonvidia' Amid Interest Rate Cut Uncertainty

NVIDIA Soars 9.32% on Strong Earnings
US Industrial Activity and Employment Strength Weaken Rate Cut Expectations

The three major indices of the U.S. New York stock market all closed lower on the 23rd (local time). Although Nvidia, the leading AI stock, surged and its share price surpassed $1,000, investor sentiment weakened as expectations for interest rate cuts retreated due to robust expansion in U.S. industrial activity. U.S. Treasury yields also surged.

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On that day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, which focuses on blue-chip stocks, closed at 39,065.26, down 605.78 points (1.53%) from the previous trading day. The S&P 500, centered on large-cap stocks, fell 39.17 points (0.74%) to 5,267.84, and the Nasdaq, focused on technology stocks, dropped 65.51 points (0.39%) to 16,736.03.

By stock, Nvidia closed up 9.32% at $1,037.99, breaking the $1,000 mark and earning the nickname "Cheonvidia." The previous day, Nvidia announced its fiscal 2025 first-quarter (February-April) results after market close, reporting revenue of $26 billion, a 262% increase year-over-year, and adjusted earnings per share (EPS) of $6.12, up 461% over the same period. These figures exceeded LSEG forecasts (revenue of $24.65 billion and adjusted EPS of $5.59). Other semiconductor stocks such as Super Micro Computer fell 2.96%. Intel and AMD declined 4.26% and 3.08%, respectively. Boeing dropped 7.55%.

Investor sentiment cooled as U.S. industrial activity, encompassing manufacturing and services, expanded at the fastest pace in two years this month. This was an unwelcome signal for markets awaiting Federal Reserve (Fed) interest rate cuts.

The comprehensive Purchasing Managers' Index (PMI) for U.S. manufacturing and services in May, released by S&P Global on the day, rose 3 points from 51.1 last month to 54.4. This is the highest level in 25 months since April 2022 and significantly exceeded expert forecasts of 51.3.

A PMI above 50 indicates economic expansion, while below 50 signals contraction. The composite PMI reaching 54.4 suggests an acceleration in the U.S. economic expansion phase.

In particular, the strong performance of the services sector led the rise in the composite PMI. The services PMI for this month was 54.8, surpassing both last month's 51.3 and market expectations of 51.2. The manufacturing PMI also exceeded both last month's 50 and expert forecasts of 50, coming in at 50.9.

S&P Global diagnosed that rising raw material prices in manufacturing could sustain inflation.

Bloomberg reported, "Such resilient demand makes it difficult for inflation to cool," adding, "This helps explain why the Fed intends to keep interest rates higher for longer."

The labor market also remained robust. The number of new unemployment claims in the U.S. for the week of May 12-18, announced that morning, was 215,000, below market expectations of 220,000 and lower than the previous week's 223,000. Continuing claims, representing those filing for unemployment benefits for at least two weeks, were 1,794,000 for the week of May 5-11, an increase of 8,000 from the previous week.

The hawkish (favoring monetary tightening) minutes of the May Federal Open Market Committee (FOMC) meeting, released the previous day, also dampened expectations for rate hikes. According to the minutes, Fed officials agreed that inflation concerns had increased, necessitating maintaining current interest rates longer than initially expected. This suggested that the current rates might not be restrictive enough to bring inflation down to the Fed's 2% target, implying a delay in rate cuts. Some officials also expressed views that rates could be raised depending on circumstances.

Market bets on rate cuts are weakening. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on that day priced in about a 51% chance that the Fed would cut rates by at least 0.25 percentage points at the September FOMC meeting. This is down from 58% the previous day and 68% a week ago, with probabilities below 60% generally considered unlikely to materialize.

Government bond yields are rising. The yield on the 10-year U.S. Treasury note, a global bond yield benchmark, rose 4 basis points (1bp = 0.01 percentage points) from the previous trading day to 4.47%, while the 2-year Treasury yield, sensitive to monetary policy, increased 5 basis points to 4.93%.

International oil prices fell amid forecasts that prolonged high interest rates could dampen demand. West Texas Intermediate (WTI) crude closed at $76.87 per barrel, down $0.70 (0.9%) from the previous day, and Brent crude, the global oil price benchmark, ended at $81.36 per barrel, down $0.54 (0.7%).