[New York Stock Market] Mixed Close Amid US Manufacturing Contraction... Sharp Drop in Treasury Yields on Rate Cut Expectations

ISM Manufacturing PMI Contracts for Second Consecutive Month in May
US 10-Year Treasury Yield Plummets Over 10bp
NVIDIA Rises About 5% on Next-Gen AI Chip Reveal

The three major indices of the U.S. New York stock market closed mixed on the first trading day of this month, the 3rd (local time). Following a cooling in U.S. consumer spending, signs of a slowdown in manufacturing have emerged, spreading expectations of interest rate cuts, causing the 10-year U.S. Treasury yield to plunge by more than 10 basis points. AI leader Nvidia surged nearly 5% after announcing its next-generation AI chip. International oil prices fell more than 3% after OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) members and non-OPEC allies) announced a gradual reduction of voluntary production cuts the previous day.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average fell 115.29 points (0.3%) from the previous trading day to close at 38,571.03. The large-cap-focused S&P 500 index rose 5.89 points (0.11%) to 5,283.4, and the tech-heavy Nasdaq index gained 93.65 points (0.56%) to close at 16,828.67.

Due to signs of economic slowdown caused by contraction in the manufacturing sector, cyclical stocks such as banks, energy, and industrials underperformed. Among individual stocks, Nvidia jumped 4.9%. Nvidia CEO Jensen Huang unveiled the next-generation AI graphics processing unit (GPU) called 'Rubin' on the 2nd, attracting strong buying interest. The Rubin GPU incorporates the 6th generation high-bandwidth memory (HBM) called 'HBM4'. GameStop surged 21% after Keith Gill, famous as 'Roaring Kitty' who led the meme stock craze, posted that he holds a large amount of GameStop stock and options. Paramount's shares rose 7.47% following news that the American film production company Skydance and Paramount agreed on merger terms.

Investors focused on signals of contraction in U.S. manufacturing on that day. The Institute for Supply Management (ISM) reported that the U.S. manufacturing Purchasing Managers' Index (PMI) for May was 48.7. This was below the expert forecast of 49.8 and also lower than the previous month's 49.2. The manufacturing PMI, a representative leading economic indicator, indicates expansion if above 50 and contraction if below 50. Thus, the U.S. manufacturing PMI continued its contraction phase for the second consecutive month.

Along with the contraction in manufacturing, inflationary pressures also eased. The price index dropped sharply to 57 from 60.9 in the previous month. In April, the price index surged to its highest level since June 2022, raising inflation concerns.

James Knightley, ING's chief international economist, analyzed, "The ISM manufacturing index contracted more than expected due to order declines and production slowdown. The construction sector was also weaker than expected, indicating that monetary policy is restrictive and is putting a brake on economic activity."

Following signs of cooling in consumer spending, which accounts for two-thirds of the U.S. economy, and continued contraction in manufacturing, concerns are rising that the U.S. economy could rapidly slow down. The cumulative effects of the Federal Reserve's (Fed) aggressive tightening may accelerate the timing of interest rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day priced in a 59% chance that the Fed will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in September. This is up from 54% the day before and 49% a week ago.

Consequently, Treasury yields are falling. The current 10-year U.S. Treasury yield is down 12 basis points (1bp = 0.01 percentage points) from the previous trading day to 4.39%, and the 2-year Treasury yield, which is sensitive to monetary policy, fell 7 basis points to 4.81%.

Investors are closely watching employment data to be released consecutively this week. On the 5th, ADP will release its May private employment report, and on the 7th, the Labor Department will release the May nonfarm payroll report. May nonfarm payrolls are expected to increase by 185,000 from the previous month. In April, payrolls rose by 175,000, below the forecast of 243,000. If the overheated labor market cools down, the slowdown in consumption and decline in inflation could accelerate.

Jacek Matejka, a strategist at JP Morgan, analyzed, "We are seeing limited summer gains due to a mismatch between demands for disinflation, a no-recession scenario, and confidence in earnings acceleration."

On that day at the NYSE, a technical error caused a sharp drop in the stock prices of 12 stocks including Berkshire Hathaway, NuScale, and Chipotle, leading to trading suspensions. Berkshire Hathaway Class A shares, led by 'investment genius' Warren Buffett, were displayed at $185.1 per share at 9:50 a.m., a 99.97% plunge from the previous closing price, causing trading to be halted for a while. NuScale, a nuclear power company, also showed a 99% drop in price, temporarily suspending trading. The NYSE forcibly halted trading at 9:45 a.m. due to these issues and announced that trading resumed normally after the problem was resolved after 11 a.m. The NYSE explained that a technical problem occurred in the price range published by the Consolidated Tape Association (CTA), which supervises real-time trading and quote information. Apart from the abnormal price displays and trading suspensions of these individual stocks, the overall New York stock market was not affected by this incident.

International oil prices fell more than 3% despite OPEC+'s announcement to extend production cuts. West Texas Intermediate (WTI) crude closed at $74.22 per barrel, down $2.77 (3.6%) from the previous trading day, marking the lowest level in four months. Brent crude, the global oil price benchmark, closed at $78.36, down $2.75 (3.4%), falling below $80 for the first time since February.

The previous day, OPEC+ extended its oil production cut of 3.36 million barrels per day until the end of 2025 and extended voluntary oil production cuts of 2.2 million barrels per day until the third quarter of this year, after which they will be gradually reduced. The market interprets the decision to reduce voluntary cuts starting in the fourth quarter as reflecting disagreements among some member countries who want to increase production, leading to expectations of increased supply.