[New York Stock Exchange] 'Were Rate Cut Hopes Overblown?' Broad Decline... Uncertainty Over Total Cuts This Year

Powell Opens Door to September Rate Cut, But Remains Cautious
Outlook Diverges on Total Cuts Expected This Year
July PCE Price Index Up 2.9% Year-on-Year... Pace of Increase Accelerates
Nvidia Earnings on the 27th, Dell Results on the 28th

All three major indexes on the New York Stock Exchange closed lower on August 26 (local time). This was due to growing caution among investors as expectations for a rate cut, which had surged after Federal Reserve Chair Jerome Powell's Jackson Hole speech, began to subside. The market is now focused on the Personal Consumption Expenditures (PCE) price index and Nvidia’s earnings, both of which are set to be announced this week.

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On this day, the Dow Jones Industrial Average, which centers on blue-chip stocks, fell by 349.27 points (0.77%) to close at 45,282.47. The S&P 500 Index, which tracks large-cap stocks, dropped by 27.59 points (0.43%) to 6,439.32, while the tech-heavy Nasdaq Index declined by 47.243 points (0.22%) to finish at 21,449.292.

The decline was triggered by doubts that the scale of rate cuts within this year might be smaller than previously expected. Optimism, which had quickly spread following Powell's suggestion of a possible rate cut during his Jackson Hole Symposium speech on the 22nd, has gradually faded. At the time, he cited slowing employment as a reason, stating, "Policy is in restrictive territory, and we can adjust our stance depending on changes in the baseline outlook and risk balance." However, this year's speech was notably more cautious than last year’s, when he said, "The time for policy adjustment (rate cuts) has come, and the direction is clear."

Accordingly, the interest rate futures market initially raised the probability of a September rate cut from the 70% range to the 90% range right after the speech, but has since adjusted it back down to the 80% range. Projections for the total rate cut within the year are also divided between 0.5 percentage points (47.9% probability) and 0.75 percentage points (34.2% probability).

Additionally, the U.S. Department of Commerce’s July PCE price index, scheduled for release on the 29th, is not expected to create favorable conditions for a rate cut. The core PCE price index, which excludes food and energy, is projected to have risen by 2.9% year-on-year in July. This is higher than June’s 2.8% and marks the highest level in five months.

Chris Larkin, Managing Director at Morgan Stanley E*TRADE, commented, "The focus now will be on how aggressively the Fed will act," adding, "While current signs of a weakening labor market seem to outweigh inflation concerns, the Fed has not abandoned its 2% inflation target."

Jose Torres, Senior Economist at Interactive Brokers, said, "Today lacked a catalyst for trading," and explained, "This sluggishness is partly due to traders reassessing Powell’s dovish (pro-monetary easing) remarks. While there is consensus for a rate cut in September, the decisions for October and December will be based on real-time data during those meetings."

Along with inflation data, Nvidia’s earnings, which will be announced after the market closes on the 27th, are another major event this week. On the following day, the 28th, Dell and Marvell will release their earnings.

Investors also paid attention to remarks from the U.S. government regarding its increased stake in Intel. President Donald Trump posted on his social networking service Truth Social, referencing Intel and stating, "I would make deals like this all day for our country." This refers to the recent move by the U.S. government to become Intel’s largest shareholder by securing about a 10% stake in exchange for providing subsidies. Kevin Hassett, Chairman of the White House National Economic Council, also explained in a CNBC interview that the Intel stake acquisition is part of the creation of a sovereign wealth fund, adding, "Even if not in this (semiconductor) industry, I am confident there will be more deals in other industries in the future."

U.S. Treasury yields are on the rise. The yield on the benchmark 10-year U.S. Treasury note is up 1 basis point (1bp = 0.01 percentage point) from the previous session to 4.27%, while the yield on the 2-year Treasury note is trading at 3.72%, up 3 basis points from the previous day.

By stock, Nvidia rose 1.02%. Intel fell 1.01%. Apple and Microsoft (MS) declined by 0.26% and 0.59%, respectively.