[New York Stock Market] Rises on September Rate Cut Signal... Nasdaq Up 2.64%

Fed Holds Interest Rates Steady for 8th Consecutive Time
Powell: "Real Risk of Employment Slowdown... September Rate Cut Discussion"
Sharp Drop in Treasury Yields... AMD and Nvidia Surge

The three major indices of the U.S. New York stock market closed higher on the 31st of last month (local time). The market responded positively as Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), hinted at the possibility of discussing interest rate cuts in September. After the Federal Open Market Committee (FOMC) regular meeting, Treasury yields fell sharply, and technology stocks, led by semiconductors, rose significantly, expanding the gains of the Nasdaq index.

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 40,842.79, up 99.46 points (0.24%) from the previous trading day. The large-cap-focused S&P 500 index rose 85.86 points (1.58%) to 5522.3, and the technology-focused Nasdaq index gained 451.98 points (2.64%) to close at 17,599.4. Both the S&P 500 and Nasdaq indices recorded their largest daily gains since February.

At the FOMC meeting held for the fifth time this year, the Fed kept the federal funds rate unchanged for the eighth consecutive time at 5.25-5.5%. Additionally, the FOMC policy statement newly included language noting a rise in unemployment and a focus not only on inflation risks but also on employment risks. It also contained an updated assessment of the inflation situation. This is seen as a signal of a potential shift in monetary policy direction amid signs of cooling in the U.S. labor market.

The market focused on Chairman Powell’s press conference immediately following the release of the FOMC policy statement. Powell said, "With the cooling labor market, the risk of inflation rebounding has decreased, while the risk of employment slowdown is now substantial," and added, "At the next meeting in September, a discussion on policy rate cuts could take place." He further explained, "It is not yet the appropriate time to cut policy rates, but we are getting closer."

He also stated, "We are watching very carefully for a rapid deterioration in the job market," and "We are prepared to respond if the labor market weakens unexpectedly or if inflation falls faster than expected." Regarding the inflation risks that the Fed has been concerned about, he assessed, "The Q2 price indicators have strengthened our confidence that inflation is steadily slowing to 2%," and "With progress on inflation, there is no longer a need to focus 100% on prices."

In fact, the employment data released in the morning before the FOMC meeting signaled a slowdown in the U.S. labor market. According to the July employment report released by ADP, a private labor market research firm, private sector job growth increased by 122,000, marking the lowest level this year. This was below both market expectations (147,000 increase) and June’s figure (155,000 increase). Wage growth slowed to its lowest level in three years since 2021. Over the past 12 months, wages for workers who stayed at the same job rose 4.8% compared to a year ago, while wages for job changers increased 7.2% during the same period. Both are the lowest levels since 2021, down 0.1 percentage points and 0.5 percentage points respectively from the previous month.

Meanwhile, as Chairman Powell hinted at the possibility of discussing rate cuts in September, Treasury yields have fallen sharply. The U.S. 2-year Treasury yield, sensitive to monetary policy, is currently down 6 basis points (1bp = 0.01 percentage point) from the previous trading day to 4.29%, and the U.S. 10-year Treasury yield, the global benchmark for bond yields, is trading around 4.06%, down 8 basis points from the previous day.

The market is taking the September rate cut as a given. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market fully prices in a rate cut of at least 0.25 percentage points at the September FOMC meeting. The probability of a 0.5 percentage point cut in September is 12.5%.

Jeffrey Roach, Chief Economist at LPL, analyzed, "The Fed’s statement has prepared the market for an upcoming rate cut," adding, "With improving inflation and rising unemployment, the Fed can cut rates while keeping nominal rates above the inflation rate." He also noted, "As the Fed fine-tunes its tone, the market is likely to respond favorably."

By individual stocks, AI leader Nvidia surged 12.81%. Nvidia, which had fallen 7% the previous day, rebounded after investment bank Morgan Stanley named it a 'top pick.' U.S. semiconductor company AMD rose 4.36% following better-than-expected Q2 earnings. Apple gained 1.5%. Boeing, the U.S. aircraft manufacturer facing crisis due to consecutive aircraft defects, rose 2% after announcing Robert Kelly Ottberg as its new CEO. Microsoft (MS) fell 1.08% despite posting better-than-expected quarterly revenue and net income after the previous day’s close, due to concerns that profitability in its AI and cloud businesses fell short of expectations.

International oil prices surged 3-4% amid concerns that the killing of the top political leader of the Palestinian militant group Hamas could escalate instability in the Middle East. West Texas Intermediate (WTI) crude oil rose $3.18 (4.26%) to $77.91 per barrel, and Brent crude, the global benchmark, closed up $2.09 (2.66%) at $80.72 per barrel.