[New York Stock Market] Nasdaq Breaks 20,000 Ceiling for the First Time Ever... 'Big Tech Rally' on Interest Rate Cut Expectations

November CPI Increase Rate Meets Market Expectations
Rate Cut This Month Becomes a Foregone Conclusion...Major Tech Stocks Rise
Tesla Surges 6%...Highest Price in 3 Years and 1 Month
Musk Becomes World's First to Surpass $400 Billion in Net Worth

On the 11th (local time) at the New York Stock Exchange in the United States, the Nasdaq index surpassed the 20,000 mark for the first time in history. After last month's Consumer Price Index (CPI) inflation rate met market expectations, investors took the Federal Reserve's (Fed) interest rate cut this month as a given, sparking a rally in big tech (large information technology companies). Tesla surged about 6%, hitting an all-time high for the first time in 3 years and 1 month, and Elon Musk, Tesla's CEO, saw his net worth exceed $400 billion (approximately 572 trillion won) for the first time ever.

On that day at the New York Stock Exchange (NYSE), the tech-heavy Nasdaq index closed at 20,034.89, up 347.65 points (1.77%) from the previous trading day. This was the first time the Nasdaq index surpassed 20,000 points. The large-cap S&P 500 index rose 49.28 points (0.82%) to 6,084.19, while the blue-chip Dow Jones Industrial Average (Dow) fell 99.27 points (0.22%) to close at 44,148.56.

Among individual stocks, large technology companies all rose together. Tesla closed at $424.77 per share, up 5.93% from the previous day, breaking its all-time high. It surpassed the previous record of $409.97 (closing price on November 4, 2021) for the first time in 3 years and 1 month. On the same day, Bloomberg estimated that due to Tesla's stock price increase and the rising valuation of SpaceX, another company founded by Musk, Musk's net worth reached $439.2 billion (approximately 628 trillion won). Musk is the first person worldwide to have a net worth exceeding $400 billion. Nvidia, the leader in artificial intelligence (AI), rose 3.14%. Alphabet, Google's parent company, increased by 5.46%, while Amazon and Meta, Facebook's parent company, rose 2.32% and 2.16%, respectively. Microsoft (MS) gained 1.28%.

The driving force behind the big tech rally was inflation data that met market expectations, leading to forecasts of an interest rate cut this month. According to the U.S. Department of Labor on that day, last month's CPI rose 0.3% month-over-month and 2.7% year-over-year. These increases were 0.1 percentage points higher than October's rates (2.6% year-over-year and 0.2% month-over-month), but all were in line with market expectations. The core CPI, which excludes volatile energy and food prices and reflects the underlying inflation trend, rose 0.3% month-over-month and 3.3% year-over-year, matching October's rates and market forecasts. Although the broad disinflation (decline in inflation rate) trend has stopped, prices did not spike significantly last month, leading Wall Street to be confident that the Fed will cut rates by 0.25 percentage points this month.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market reflected a 98.6% probability that the Fed will cut rates by 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting scheduled for the 17th-18th. This probability rose from 78.1% a week ago and 88.9% the day before. The chance of holding rates steady is 1.4%.

Shima Shah, Chief Global Strategist at Principal Asset Management, said, "Today's inflation report confirms the likelihood of a Fed rate cut next week," but also analyzed that "core inflation remains high, so price pressures have not yet reached a level where the Fed can be completely reassured."

On Wall Street, there is a high expectation that after the Fed implements a small cut (0.25 percentage points) this month, it will hold rates steady in January next year. Even if rates are cut this month, it is expected to be a 'hawkish (favoring monetary tightening) cut.' Previously, Fed Chair Jerome Powell and other monetary policy officials repeatedly emphasized that the U.S. economy remains robust and there is no reason to rush rate cuts. Concerns that inflation could rise if President-elect Donald Trump implements tariff increases, illegal immigration bans, and tax cuts after taking office in January next year are also reasons why the Fed is expected to take a cautious stance on monetary easing.

Investors are awaiting the release of the November Producer Price Index (PPI) on the 12th, one day later. The wholesale price PPI is expected to have risen 0.3% month-over-month and 2.5% year-over-year last month, an increase from October's 0.2% and 2.4%, respectively.

Government bond yields are on the rise. The 10-year U.S. Treasury yield, a global bond yield benchmark, rose 5 basis points (1bp = 0.01 percentage points) from the previous trading day to 4.27%, while the 2-year U.S. Treasury yield, sensitive to monetary policy, moved up 1 basis point to around 4.15%.

Meanwhile, some on Wall Street continue to warn that the New York stock market has reached bubble levels. Although the bubble may not burst immediately, the valuation of the New York stock market has reached historic highs, which could lead to lower future returns. In particular, there are forecasts that the New York stock market will enter a bear market next year. BCA Research warned that based on consumer slowdown and weakening employment, the New York stock market could enter a bear market next year with a potential decline of up to 35%.