New York Stock Market Falls Amid Caution Over US Fed Hawkish Remarks... Focus on Micron Earnings

Bowman "No Interest Rate Cut Expected This Year"
US Treasury Yields Rise Amid Talks of Further Hikes
May PCE Inflation Data on 27th Key
Micron Earnings Scheduled After Market Close

The three major indices of the U.S. New York stock market were in a downward trend early on the 26th (local time). This reflected caution following hawkish remarks from a Federal Reserve (Fed) official the previous day, suggesting there may be no interest rate cuts within the year. The market is awaiting Micron's earnings report to be released after the close of trading that day and the Personal Consumption Expenditures (PCE) price index scheduled for release on the 27th.

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As of 9:42 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was down 0.31% from the previous close, standing at 38,990.27. The large-cap focused S&P 500 index fell 0.25% to 5,455.61, and the tech-heavy Nasdaq index declined 0.17% to 17,687.54.

By individual stocks, FedEx surged 11.73% after reporting fourth-quarter fiscal year results that exceeded market expectations. U.S. electric vehicle maker Rivian soared 31.56% on news that it would receive a $5 billion investment from Volkswagen Group. Micron, which is scheduled to report earnings after the market close, was down 0.21%. AI leader Nvidia rose 0.16%. Nvidia's stock has surged 154% this year, increasing its market capitalization to $3.1 trillion. Market opinions on Nvidia's stock are divided between optimism about further upside potential and caution about a possible bubble.

David Bansen, Chief Investment Officer (CIO) of Bansen Group, stated, "Technology and communication services stocks account for nearly half of the S&P 500's market capitalization," adding, "This is frightening and certainly unsustainable." He further noted, "The stock market is overly dependent on big tech stocks. While many big tech companies are excellent businesses, their valuations may be unrealistic."

The market is cautious about the hawkish remarks made by Fed Governor Michelle Bowman the previous day. At an event in London, Bowman said, "It is not yet the appropriate time to lower the policy rate," and added, "No rate cuts are expected this year, and the timing of cuts has been pushed further into the future." Regarding inflation outlook, she emphasized, "There are many upside risks," and warned, "If inflation progress stalls or reverses, there is a willingness to raise the federal funds rate target range at future meetings."

On the other hand, Fed Governor Lisa Cook attended a New York Economic Club event the previous day and said, "If inflation makes significant progress and the labor market gradually eases, it would be appropriate at some point to reduce the level of policy restraint to maintain a healthy economic balance." Although she did not specify the timing of rate cuts, her remarks were more dovish (favoring monetary easing) than Bowman's. She also anticipated considerable progress in inflation, forecasting that inflation would continue to decline along a "bumpy path" over the next 3 to 6 months and would slow more sharply next year.

With Fed officials expressing differing views, the market has been more responsive to hawkish comments. Concerns that the timing of rate cuts may be delayed have pushed bond yields higher. The U.S. 10-year Treasury yield, a global benchmark for bond yields, rose 6 basis points (1 bp = 0.01 percentage points) from the previous trading day to around 4.3%. The 2-year Treasury yield, sensitive to monetary policy, increased 3 basis points to about 4.72%.

Accordingly, reliance on the May PCE price index, to be released on the 27th, is growing as the market seeks clues about inflation trends and the Fed's interest rate path. If the slowdown in PCE inflation, the Fed's preferred gauge, is confirmed, it would add another basis for rate cuts. With both the Consumer Price Index (CPI) and Producer Price Index (PPI) showing eased increases last month, PCE inflation is also expected to slow. The market expects May core PCE inflation to rise 0.1% month-over-month and 2.6% year-over-year, both below the previous month's figures of 0.2% and 2.8%, respectively.

The final U.S. first-quarter Gross Domestic Product (GDP) figure and last week's initial jobless claims will also be released on the 27th. The final GDP figure is expected to match the preliminary estimate of an annualized 1.3% increase quarter-over-quarter. Initial jobless claims are forecast to have slightly increased to 240,000 from the previous week's 238,000.

International oil prices were steady. West Texas Intermediate (WTI) crude oil was trading at $80.76 per barrel, down $0.07 (0.09%) from the previous day, while Brent crude, the global benchmark, fell $0.09 (0.11%) to $84.92 per barrel.