[New York Stock Market] Dow and S&P 500 Hit New Highs Again... Middle East Ceasefire Eases Trump's 'Tariff Threat'

Biden "Israel-Hezbollah Ceasefire Agreement"
Mexico Warns Retaliatory Tariffs Amid Trump Tariff Threats
GM, Ford and Other Auto Stocks Decline
FOMC Minutes Suggest Pace Adjustment for Rate Cuts

The three major indices of the U.S. New York Stock Exchange all closed higher on the 26th (local time). The easing of geopolitical tensions following the ceasefire news between Israel and the Lebanese militant group Hezbollah dispelled the threat of a 'tariff bomb' from U.S. President-elect Donald Trump. Both the Dow Jones Industrial Average and the S&P 500 index once again hit record highs.

On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 44,860.31, up 123.74 points (0.28%) from the previous trading day. The large-cap-focused S&P 500 index ended trading at 6,021.63, up 34.26 points (0.57%). Both the Dow Jones Industrial Average and the S&P 500 index set all-time highs. The tech-heavy Nasdaq index closed at 19,174.3, up 119.46 points (0.63%).

U.S. President Joe Biden announced that Israel and Hezbollah had agreed to a ceasefire. This halted the war between Israel and Hezbollah that began about 13 months ago following a surprise attack by the Palestinian militant group Hamas on Israel in October last year. The ceasefire agreement will take effect at 4 a.m. local time on the 27th (11 a.m. Korean time on the same day). However, the war between Israel and Hamas continues.

Investors focused on the easing of Middle East tensions and shrugged off President-elect Trump's tariff threats. The day before, Trump announced via his social media platform Truth Social that he would sign an executive order on January 20, the day of his inauguration, imposing an additional 10% tariff on China and 25% tariffs on Mexico and Canada. He cited issues with Mexico and Canada’s inadequate handling of illegal immigration and China’s lax enforcement against drug trafficking, including fentanyl. In response, Mexican President Claudia Sheinbaum immediately announced retaliatory tariffs.

Some on Wall Street believe that the tariff risks have already been priced into the market and that the threats are likely a 'negotiation tactic.' Jamie Cox, managing partner at Harris Financial, said, "The market is leaning toward the analysis that these tariffs are more of a threat or negotiation tactic rather than actual implementation," adding, "Many people perceive the tariffs as more rhetorical than substantive."

There is also analysis suggesting it is too early to assess the impact of the tariff threats. Justin Onuekwusi, Chief Investment Officer (CIO) at St. James's Place, said, "We are only seeing the beginning of volatility, and if the rhetoric continues, volatility will persist," adding, "It is very difficult to evaluate whether the tariffs are threats, promises, or negotiation tools."

The market also paid attention to the minutes of the Federal Open Market Committee (FOMC) meeting released that day by the U.S. Federal Reserve (Fed). The FOMC minutes stated that "participants expected it would be appropriate to gradually move toward a more neutral policy stance." Opinions were also expressed that if the decline in inflation slows, it may be necessary to slow down or temporarily pause monetary easing. This is interpreted as a signal to adjust the pace of easing, consistent with Fed Chair Jerome Powell’s statement on the 14th that rate cuts would not be rushed.

With the FOMC minutes suggesting gradual rate cuts, the market is increasingly expecting the Fed to implement a 'small cut' (a 0.25 percentage point rate cut) next month. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on that day priced in a 63.1% chance of a 0.25 percentage point rate cut at the December FOMC meeting and a 36.9% chance of rates remaining unchanged. However, the market expects three rate cuts next year, rather than the four 0.25 percentage point cuts forecast in the September dot plot.

By individual stocks, U.S. automaker General Motors (GM) fell 8.99%. Ford dropped 2.63%. The tariff threats from President-elect Trump negatively affected the stocks of these two companies, which have production bases in Canada and Mexico. Global pharmaceutical company Amgen declined 4.76% after clinical trial results for its obesity treatment failed to meet market expectations.

Government bond yields are on the rise. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 3 basis points (1 bp = 0.01 percentage point) from the previous trading day to 4.29%. The 2-year Treasury yield, sensitive to monetary policy, traded around 4.25%, the same level as the previous day.