[New York Stock Market] US FOMC Caution Leads to Broad Decline... Dow Down for 9 Consecutive Days for the First Time in 46 Years

Dow Drops for 9 Consecutive Trading Days... First Time Since 1978
November Retail Sales Increase Exceeds Expectations
FOMC Meeting Next Day in Focus... Interest Rate Outlook for Next Year is Key
GDP to be Released on 19th, PCE on 20th

The three major indices of the U.S. New York Stock Exchange all closed lower on the 17th (local time). The Dow Jones Industrial Average (Dow) continued its nine-day losing streak for the first time since 1978. This is analyzed as investors raising caution ahead of the Federal Reserve's (Fed) interest rate decision the following day. With U.S. consumer spending confirmed to be robust, there is growing speculation in the market that the Fed may reaffirm its cautious stance on monetary easing.

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On this day in the New York stock market, the blue-chip-focused Dow closed at 43,449.9, down 267.58 points (0.61%) from the previous trading day. Thus, the Dow has experienced nine consecutive days of decline since breaking the historic 45,000 mark earlier this month, marking the longest bearish streak in 46 years since 1978. The large-cap S&P 500 index fell 23.47 points (0.39%) to 6,050.61, and the tech-heavy Nasdaq dropped 64.83 points (0.32%) to 20,109.06.

By individual stocks, JPMorgan Chase fell 0.52%. Morgan Stanley declined 1%, and Bank of America (BoA) was down 0.9%. Semiconductor company Broadcom, which surpassed a $1 trillion market capitalization for the first time last week, plunged 3.91%. AI leader Nvidia dropped 1.22%. Tesla surged 3.64%, hitting another all-time high.

Investors took profits on cyclical stocks that had risen during the so-called 'Trump rally,' leading to price declines centered on these stocks. David Russell, Global Market Strategist at TradeStation, said, "Wall Street is realizing that the term of President-elect Trump may not be as favorable for stocks as some had hoped," adding, "Financials and industrials jumped on Trump's victory but may face higher interest rates and trade uncertainties."

As the U.S. economy remains robust, expectations that the Fed will slow the pace of rate cuts are gaining more weight. According to the U.S. Department of Commerce, November retail sales totaled $724.6 billion, up 0.7% from the previous month. This exceeded both market expectations (0.6%) and October's figure (0.5%). The strong retail sales, which account for two-thirds of the U.S. economy, reaffirmed steady growth, spreading forecasts that the Fed may slow the pace of rate cuts as previously indicated.

Investors currently place a high probability on the Fed implementing a 'small cut' (0.25 percentage point rate cut) the next day. According to the Chicago Mercantile Exchange (CME) FedWatch, federal funds futures on this day reflected a 95.4% chance that the Fed would cut rates by 0.25 percentage points at this Federal Open Market Committee (FOMC) meeting. The probability of holding rates steady was 4.6%. The key issue is next year. If the U.S. economy remains more robust than expected, even if the Fed cuts rates this month, it is likely to be a 'hawkish cut' (favoring monetary tightening) before the monetary easing halt in January next year. Market forecasts suggest that the number of expected rate cuts in the Fed's dot plot released the next day will decrease from the previous four times (100 basis points; 1 bp = 0.01 percentage points) to fewer than three times next year.

Chris Larkin, Investment Managing Director at Morgan Stanley eTrade, said, "Stronger economic indicators like retail sales could support the argument that the Fed should stop cutting rates in January next year."

Tom Essaye, President of The Sevens Report, analyzed, "Whether the Fed's decision the next day is positive, negative, or neutral for stocks and bonds will likely depend not on the actual rate cut but on the FOMC's stance on rate cuts in 2025."

Besides retail sales, several key economic indicators that can confirm the U.S. economic situation will be released this week. On the 19th, the final figure for third-quarter Gross Domestic Product (GDP) growth will be announced, and on the 20th, the November Personal Consumption Expenditures (PCE) price index, the Fed's most important inflation gauge, will be released.

U.S. Treasury yields remain steady. The 10-year U.S. Treasury yield, a global bond yield benchmark, is at 4.4%, and the 2-year Treasury yield, sensitive to monetary policy, is around 4.24%, both moving at levels similar to the previous trading day.