[Good Morning Market] New York Stock Market Ends Mixed Despite Rate Cut... KOSPI Expected to Open Lower

Despite the Federal Reserve's interest rate cut, the three major stock indexes in New York ended mixed. On September 18, the KOSPI is expected to open lower, reflecting the mixed performance of the New York stock market and negative news regarding Nvidia from China.

Yonhap News Agency

On the 17th (local time), the Dow Jones Industrial Average closed at 46,018.32, up 260.42 points (0.57%) from the previous session. The S&P 500 fell by 6.41 points (0.1%) to 6,600.35, and the Nasdaq ended the session at 22,261.326, down 72.633 points (0.33%).

The Federal Reserve lowered its benchmark interest rate by 25 basis points (1bp=0.01 percentage point) at the Federal Open Market Committee (FOMC) regular meeting. This marks the first rate cut in nine months since December last year. In its policy statement, the Fed described economic activity as having softened and newly added the phrase "job growth has slowed." Weak employment indicators were the main reason behind the rate cut.

However, market reactions were divided following comments by Federal Reserve Chair Jerome Powell. He devoted significant time to discussing the labor market. Powell stated that the large-scale employment revisions indicate "the labor market is no longer robust," and assessed that "labor supply has clearly decreased significantly, and demand has also dropped sharply."

He further explained, "Downside risks to the labor market have increased," and noted, "The recent pace of job growth appears to be below the 'break-even' level needed to keep the unemployment rate steady, and it is unusual to see both labor supply and demand slowing at the same time."

The fact that a cooling labor market and economic deterioration were the main reasons for the rate cut heightened market fears. As a result, the Nasdaq fell by more than 1% during intraday trading.

Seo Junghoon, a researcher at Samsung Securities, explained, "Chair Powell mentioned at the press conference that a big cut (50bp) is not being considered, and he also suggested that decisions at upcoming meetings could change depending on economic data, which reignited caution in the market. During the early part of the press conference, when this was being reported, the S&P 500 index fell by nearly 1%."

Ahn Kitae, a researcher at NH Investment & Securities, said, "After the Federal Reserve decided on a 25bp rate cut at the September FOMC meeting, the stock market closed flat. Although volatility temporarily increased immediately after the release of the dot plot, overall, the outcome was in line with market expectations, so additional stock price volatility is likely to be limited."

The Korean stock market is also expected to open lower due to the influence of the New York stock market, with the negative news about Nvidia likely to have an impact as well. Nvidia declined by more than 2% following reports that the Chinese government has banned domestic companies from purchasing its latest artificial intelligence (AI) chips.

Lee Sunghoon, a researcher at Kiwoom Securities, commented, "We expect the domestic stock market to face strong downward pressure at the start of the session, as investors realize profits following the recent rally, digest the mixed signals from the September FOMC, and react to the negative news about Nvidia from China. However, with continued domestic policy momentum, we anticipate that bargain hunting will emerge later in the session, helping the market recover its earlier losses."