[New York Stock Market] Monitoring Potential Additional 'Big Cut' Despite Manufacturing Contraction... Dow & S&P Reach Record Highs

September Manufacturing PMI Below Expectations... Contraction Phase Continues
US Fed's Goolsbee "Rate Cuts Still Far Away"
Bostic Also Leaves Door Open for Big Cut
Interest Rate Futures Market Tight on Big Cut vs Small Cut Outlook

The three major indices of the U.S. New York Stock Exchange closed slightly higher on the 23rd (local time). Investors digested remarks from Federal Reserve (Fed) officials regarding future interest rate outlooks. Despite news of a manufacturing sector contraction, the market edged up slightly as some officials left the door open for an additional 'big cut' (0.5 percentage point rate cut) following the one on the 18th.

Austan Goolsbee, President of the Federal Reserve Bank of Chicago

On this day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at a record high of 42,124.65, up 61.29 points (0.15%) from the previous trading day. The large-cap-focused S&P 500 index also closed at an all-time high of 5,718.57, rising 16.02 points (0.28%). The tech-heavy Nasdaq index ended the day at 17,974.27, up 25.95 points (0.14%).

Fed officials said that the restrictive interest rates in the U.S. are burdening the economy and left room for an additional big cut. Austan Goolsbee, president of the Chicago Federal Reserve Bank and a prominent dove (favoring monetary easing) within the Fed, stated at an event that "the current benchmark interest rate is estimated to be several hundred basis points (1 bp = 0.01 percentage point) above the neutral rate," adding, "It will take a long way to lower rates close to the neutral level over the next 12 months to maintain the current situation." Raphael Bostic, president of the Atlanta Fed, also saw room for the Fed to cut rates to the neutral level. Although more cautious than Goolsbee, he left open the possibility of an additional big cut depending on future employment data.

On the other hand, some officials ruled out the possibility of a big cut. Neel Kashkari, president of the Minneapolis Fed, said that unless the data changes substantially, "smaller steps" will be taken, implying the next rate cut would likely be 0.25 percentage points.

With differing views among Fed officials on the size of future rate cuts, the interest rate futures market is also evenly split between expectations of a 25 bp cut and a 50 bp cut. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on this day priced in a 50.5% chance of a 0.25 percentage point rate cut and a 49.5% chance of a 0.5 percentage point cut at the upcoming November FOMC meeting.

The economic indicators released on this day were mixed. The service sector remained in expansion, but the manufacturing sector slowed down.

The September Manufacturing Purchasing Managers' Index (PMI) released by S&P Global recorded 47, down from 47.9 the previous month and significantly below the market forecast of 48.6. The manufacturing PMI, a leading economic indicator, signals expansion when above 50 and contraction when below 50. This confirmed the ongoing contraction phase in the U.S. manufacturing sector. The service sector PMI recorded 55.4, slightly exceeding the expert forecast of 55.3, maintaining its expansion phase.

Investors are expected to closely watch remarks from Fed Chair Jerome Powell and other officials scheduled for this week, along with various economic indicators, to gauge the current economic situation and the pace of future rate cuts. Key economic data to be released this week include the August Personal Consumption Expenditures (PCE) price index, the finalized Q2 real Gross Domestic Product (GDP) growth rate, and weekly initial jobless claims.

Chris Larkin, head of trading at Morgan Stanley's E*TRADE, forecasted, "With the Fed cutting rates for the first time since 2020, many investors will now consider what to do next," adding, "Attention will focus on economic growth, especially the employment market."

By individual stocks, Tesla surged 4.93%. The stock was boosted by forecasts that third-quarter electric vehicle deliveries will exceed market expectations. Intel rose 3.3% on news that Apollo Global Management proposed a $5 billion equity investment amid financial difficulties. Networking software company Sienna jumped 5.04% after Citigroup upgraded its investment rating from 'sell' to 'buy,' a two-notch increase.

Government bond yields were slightly higher. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 2 basis points to 3.75% from the previous trading day, while the 2-year Treasury yield, sensitive to monetary policy, increased 1 basis point to 3.58%.

International oil prices declined. West Texas Intermediate (WTI) crude fell $0.63 to close at $70.37 per barrel, and Brent crude, the global oil price benchmark, dropped $0.58 to $73.90 per barrel.