[New York Stock Market] Indexes Fall Across the Board on Caution Ahead of Powell's Jackson Hole Speech... Fed Officials Make Consecutive 'Hawkish Remarks'

Fed Officials Cautious on Rate Cuts
"No Support for Easing Now" "Need Convincing Data"
August Manufacturing PMI Sees Biggest Jump in Over Three Years
Hawkish Remarks Raise Concerns Ahead of Powell's Jackson Hole Speech
September Rate Cut Odds Drop from 82% to 73%

All three major indexes on the New York Stock Exchange closed lower on August 21 (local time). Ahead of Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium, investors adopted a wait-and-see approach, with concerns spreading in the market that his remarks could be more hawkish (favoring monetary tightening) than expected. Additionally, robust manufacturing indicators weakened hopes for a rate cut.

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On this day, the blue-chip Dow Jones Industrial Average closed at 44,785.5, down 152.81 points (0.34%) from the previous session. The large-cap S&P 500 Index fell 25.61 points (0.4%) to 6,370.17, while the tech-heavy Nasdaq Index dropped 72.545 points (0.34%) to 21,100.312. As a result, the S&P 500 Index extended its losing streak to five consecutive sessions, and the Nasdaq Index declined for the third straight session.

Investors are now focused on Chair Powell's speech scheduled during the three-day Jackson Hole Symposium starting today. The key question is whether he will deliver a message in line with expectations for a rate cut in September or maintain his cautious stance. There is also speculation that he may emphasize the independence of the central bank, especially as pressure from the White House for a rate cut mounts.

Ahead of the Jackson Hole meeting, Fed officials made hawkish remarks. On this day, Beth Hammack, President of the Federal Reserve Bank of Cleveland, stated, "If I had to decide on rates tomorrow, I would not support a policy of monetary easing." Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, also expressed caution about a rate cut in September, saying, "If we are to adjust the policy rate right now, we would need very convincing data." He pointed out, "The final stretch of bringing down inflation seems quite challenging," adding, "Current inflation is closer to 3% than 2%, and there is still work to be done."

Manufacturing indicators also diminished the perceived need for a rate cut. The U.S. Manufacturing Purchasing Managers' Index (PMI) released by S&P Global for August rose to 53.3, up 3.5 points from the previous month (49.8), marking the largest increase since May 2022. This figure significantly exceeded market expectations (49.7), suggesting that the manufacturing sector has entered an expansion phase. Concerns were raised that a recovery in demand could fuel inflation.

Andrew Brenner, Managing Director at NetAlliance Securities, analyzed, "With such strong PMI numbers, it has become even more difficult for Chair Powell to pivot toward focusing on employment slowdown over inflation in his speech tomorrow."

As a result, market expectations for a rate cut have retreated somewhat. According to CME FedWatch, as of this day, the probability that the Fed will cut its current benchmark rate of 4.25-4.5% by 0.25 percentage points in September was calculated at 73.6%. This is down from 92.1% a week ago and 82.4% the previous day.

The minutes of the July Federal Open Market Committee (FOMC) meeting, released earlier, also showed a broad consensus among Fed officials that a rate cut would be premature. The minutes stated, "Participants emphasized both the risks of rising inflation and declining employment," adding, "Most considered rising inflation to be the greater risk of the two." However, it also revealed internal disagreements, noting, "Some viewed the downside risk to employment as the most significant threat."

Signs of a slowdown in the labor market continue to accumulate. According to the U.S. Department of Labor, the number of new jobless claims for the week of August 10-16 reached 235,000, the highest in two months and exceeding market expectations (226,000) by 9,000. Continuing jobless claims for the week of August 3-9 stood at 1,972,000, surpassing the forecast (1.96 million) and marking the highest level in three years and nine months since November 2021.

As expectations for a rate cut declined, Treasury yields rose. The yield on the benchmark 10-year U.S. Treasury note increased by 2 basis points (1bp=0.01 percentage point) from the previous session to 4.32%, while the yield on the 2-year Treasury note rose by 4 basis points to 3.79%.

By stock, Walmart fell 4.49%. Although quarterly sales exceeded expectations, profit fell short of forecasts for the first time since May 2022, prompting selling. Technology stocks, which had declined for two consecutive days, also showed overall weakness. Nvidia dropped 0.24%, while Apple and Microsoft (MS) fell 0.49% and 0.13%, respectively. Meta, Facebook's parent company, slid 1.15%, and Tesla dropped 1.17%.