Powell Signals Possible Rate Cut in September... S&P and Nasdaq Hit New Highs Again [New York Stock Market]

Powell "Delayed Policy Easing Will Weaken Economy and Employment"
Focus on June CPI Data Released on the 11th

The three major indices of the U.S. New York stock market closed mixed on the 9th (local time). Following Federal Reserve (Fed) Chair Jerome Powell's congressional remarks that raised expectations for a rate cut in September, the S&P 500 and Nasdaq indices rose slightly, hitting new all-time highs. Investors are now focusing on the June Consumer Price Index (CPI) data to be released on the 11th.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average fell 52.82 points (0.13%) from the previous trading day to close at 39,291.97. The large-cap-focused S&P 500 rose 4.13 points (0.07%) to 5,576.98, and the tech-heavy Nasdaq increased by 25.55 points (0.14%) to 18,429.29, once again setting new record highs.

By individual stocks, Nvidia rose 2.48%. KeyBank raised its target price to $180, 40% above the previous day's closing price, attracting buying interest. British oil company British Petroleum (BP) fell 4.79% after announcing it expects losses of up to $2 billion in the second quarter. U.S. chemical company Chemours rose 0.58% after UBS upgraded its investment rating from 'neutral' to 'buy.' Apple, which reclaimed the No. 1 market capitalization spot from Microsoft (MS) the previous day, rose 0.38%.

The market focused on Powell's remarks as he appeared before the Senate to deliver the semiannual monetary policy report. Powell expressed concerns that keeping interest rates too high for too long could jeopardize economic growth. He stated, "High inflation is not the only risk we face," and added, "If policy constraints are eased too late or too little, economic activity and employment could weaken excessively." Powell's message marked a shift from his previous focus on rising inflation. With signs of labor market slowdown emerging after inflation, it is analyzed that the Fed has begun shifting its monetary policy focus from price stability to employment.

David Russell, Global Market Strategist at TradeStation, said, "The labor market is slowing, and Powell has started to pay attention. He recognizes that policy is restrictive and that progress on inflation has been made."

Powell's remarks have strengthened market expectations for a rate cut in September. Krishna Guha, Vice Chairman at Evercore ISI, said, "We read his comments on risk balance as particularly dovish," adding, "If upcoming data, including the inflation report released on Thursday (the 11th), supports the Fed's more advanced assessment, the foundation for a September rate cut will continue to build."

The market is expected to shift its focus to the June CPI data released on the 11th after reviewing Powell's remarks before the House of Representatives, which will continue until the 10th. Last month's CPI is expected to rise 3.1% year-over-year, below May's increase of 3.3%. The CPI growth rates for April and May (3.4% and 3.3%, respectively) were both lower than the previous months (3.5% and 3.4%), so the key question is whether the CPI slowdown trend has continued for three consecutive months. Particular attention is on whether the persistently high housing cost inflation, a component of the CPI, has eased. Core CPI, which excludes volatile food and energy prices, is expected to rise 3.4% in June, the same as May's increase.

The day after the CPI release, on the 12th, the June Producer Price Index (PPI) will be released. The wholesale price index, PPI, influences the retail price index, CPI, over time. The PPI is expected to rise 0.1% month-over-month in June, surpassing May's -0.2% figure.

Given the recent cooling of the U.S. labor market, if the June CPI data continues the disinflation (slowing inflation) trend, the Fed may be able to lay the groundwork for a rate cut. The U.S. unemployment rate for June, released on the 5th, reached 4.1%, the highest level in two and a half years. Nonfarm payrolls increased by 206,000, a smaller gain compared to the previous month's 218,000.

However, some voices caution that investors may be overly optimistic about the Fed's potential rate cut in September. Adam Crisafulli, founder of U.S. financial information firm Vital Knowledge, said, "Investors are too optimistic about the Fed's rate cut and are not paying enough attention to the easing economic momentum. We remain cautious on the S&P 500. While a September cut is likely, it will probably be a gradual easing cycle, which is unlikely to immediately halt the ongoing growth slowdown."

U.S. Treasury yields were slightly higher. The 10-year U.S. Treasury yield, a global bond benchmark, rose 3 basis points (1 bp = 0.01 percentage points) from the previous trading day to 4.29%, while the 2-year Treasury yield, sensitive to monetary policy, traded around the previous day's level of 4.62%.

International oil prices fell as concerns over hurricane damage to oil production facilities in Texas eased. West Texas Intermediate (WTI) crude fell $0.92 (1.1%) to $81.41 per barrel, and Brent crude, the global oil price benchmark, dropped $1.09 (1.3%) to close at $84.66.