New York Stock Market Falls Amid FOMC Caution... Apple Rises 2%

May 12 FOMC Meeting, Awaiting May CPI Release
May Small Business Optimism Index Exceeds Market Expectations

The three major indices of the U.S. New York stock market showed a downward trend in the early trading session on the 11th (local time). Market caution is increasing ahead of the two-day Federal Open Market Committee (FOMC) regular meeting starting that day and the release of the May Consumer Price Index (CPI) the following day.

As of 9:37 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was trading at 38,575.77, down 0.75% from the previous close. The large-cap focused S&P 500 index was down 0.35% at 5,342.16, and the tech-heavy Nasdaq index was down 0.02% at 17,188.6.

By individual stocks, Apple is up 2.01%. At the annual Worldwide Developers Conference (WWDC) that opened the day before, Apple unveiled its first artificial intelligence (AI) system called 'Apple Intelligence' and announced a collaboration with OpenAI to integrate 'ChatGPT' functionality into its voice assistant Siri. Despite a 1.91% drop the previous day despite the new AI service announcement, Apple rebounded within a day, recovering its losses. U.S. automaker General Motors (GM) rose 1.45% following the announcement of a $6 billion share repurchase plan. Nvidia, on its second trading day after a 10-for-1 stock split, is up 0.12%. On the other hand, JPMorgan Chase is down 2.45%, American Express and Amgen are down 2% and 1.29%, respectively.

Investors are focusing on the fourth FOMC regular meeting of the year, held over two days starting on this day. The Fed is highly likely to keep the benchmark interest rate unchanged at 5.25-5.5% for the seventh consecutive time immediately after the FOMC meeting the next day. The key point is the revision of the dot plot reflecting FOMC members’ interest rate forecasts. In March, the Fed maintained its previous forecast (from December last year) that interest rates would be cut three times by 0.25 percentage points each this year, but this time, it is expected that the number of rate cuts will be reduced to two or fewer.

The interest rate futures market reflects the possibility of one rate cut within the year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day priced in about a 54.5% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting. A probability below 60% essentially means no chance. The probability of a cut in November is 68%, and in December, 89%.

Before the Fed’s rate decision and dot plot release on the 12th, the May CPI will also be announced that morning. Experts expect that last month’s CPI and core CPI rose 3.4% and 3.5%, respectively, compared to the previous year. The May CPI inflation rate is expected to be the same as the previous month, while the core CPI inflation rate is expected to decline by 0.1 percentage points from the previous month. Attention is focused on whether the core CPI inflation rate, which hit a three-year low in April, continued to slow in May. With recent mixed employment data, the market is expected to try to gauge clues about the future interest rate path through the May CPI figures.

Zachary Hill, Chief Portfolio Manager at Horizon Investments, said, "Two big events, the CPI report and the Fed meeting, are scheduled for midweek this week," adding, "Before that, we are spending time waiting."

The National Federation of Independent Business (NFIB) reported that the May small business optimism index was 90.5, exceeding both market expectations (89.8) and the previous month’s figure (89.7).

Corporate earnings announcements are also scheduled. Oracle and Rubrik will release their earnings after the market closes on this day.

Government bond yields are falling. The U.S. 10-year Treasury yield, a global bond yield benchmark, is trading at 4.45%, down 2 basis points (1bp = 0.01 percentage points) from the previous trading day, and the 2-year Treasury yield, sensitive to monetary policy, is trading at 4.85%, down 3 basis points.

International oil prices are steady. West Texas Intermediate (WTI) crude oil is trading at $77.69 per barrel, down $0.05 (0.1%) from the previous trading day, while Brent crude, the global oil price benchmark, is trading at $81.67 per barrel, up $0.04 (0.1%).