[New York Stock Market] All Major Indices Fall Amid FOMC Caution... Treasury Yields Rise on Uncertain Rate Outlook for Next Year

All Eyes on FOMC Meeting on the 10th: 0.25% Rate Cut Highly Likely
Persistent Inflation and Slowing Employment Fuel Internal Divisions
Record Number of Dissenting Votes Expected; Uncertainty Over Next Year's Rate Path
U.S. Approves 'H200' Exports to China; Nvidia Shares Rise 1.7%

On December 8 (local time), all three major indices of the U.S. stock market closed lower. Investors grew increasingly cautious ahead of the Federal Reserve's benchmark interest rate decision scheduled for December 10. Despite expectations for a rate cut, persistent high inflation and internal disagreements within the Fed have heightened uncertainty about next year's rate trajectory, and the rise in the 10-year U.S. Treasury yield weighed on investor sentiment.

Traders are working on the floor of the New York Stock Exchange (NYSE) in the United States. Photo by UPI Yonhap News

On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 47,739.32, down 215.67 points (0.45%) from the previous trading day. The large-cap S&P 500 Index fell by 23.89 points (0.35%) to 6,846.51, while the tech-heavy Nasdaq Index dropped by 32.224 points (0.14%) to 23,545.904.

The main focus of the market this week is on the Federal Open Market Committee (FOMC) regular meeting, which will be held from December 9 to 10. Given recent signs of a slowdown in employment, the prevailing expectation is that the Fed will lower its current benchmark interest rate of 3.75-4.0% by 0.25 percentage points. According to CME FedWatch, the interest rate futures market is reflecting an 89.4% probability that the Fed will cut rates by 0.25 percentage points at this meeting, while the probability of holding rates steady stands at 10.6%.

This is closely linked to concerns over a slowdown in the U.S. labor market. According to ADP, a private labor market research firm, non-farm payrolls in November decreased by 32,000 compared to the previous month. This figure is not only significantly lower than October's increase of 47,000 but also falls well short of market expectations for a 5,000 increase.

However, as inflation still exceeds the Fed's 2% target, there are expected to be clear differences of opinion within the FOMC regarding the future rate path. Even if the Fed decides to cut rates, it is possible that several members will dissent, and some predict that, for the first time since 1983, as many as five members could vote against the decision. Even if the Fed cuts rates this month, there is a possibility that the dot plot will indicate a limited pace of future cuts, reinforcing a more hawkish outlook.

As uncertainty over next year's interest rate outlook intensifies, bond yields edged up. The yield on the 10-year U.S. Treasury, the global benchmark for bond yields, rose by 2 basis points (1bp = 0.01 percentage points) from the previous trading day to 4.16%. The yield on the 2-year U.S. Treasury, which is sensitive to monetary policy, rose by 1 basis point to 3.57%.

Ian Lyngen, Managing Director and Head of U.S. Rates Strategy at BMO Capital Markets, analyzed, "The persistent signs of weakness in the labor market have solidified expectations for a 0.25 percentage point rate cut, but this will undoubtedly be one of the most hotly debated rate decisions in recent history."

Eric Freedman, Chief Investment Officer (CIO) at Northern Trust, stated, "The market is appropriately focused on whether the FOMC will cut or hold rates after the meeting," adding, "However, what investors may be more interested in are the outlooks of the voting members and the future leadership of the Fed."

By individual stocks, Nvidia's share price rose 1.73% after news broke that the U.S. Department of Commerce would approve the export of its advanced artificial intelligence (AI) chip 'H200' to China. Broadcom gained 2.78%. Microsoft saw buying interest after reports that it is discussing custom chip design with Broadcom, closing up 1.63%. Data infrastructure company Confluent surged 29.08% after news that IBM would acquire the company for $11 billion.

Additionally, after Paramount Skydance made a hostile takeover offer for Warner Bros. Discovery, the share prices of the two companies rose by 9.02% and 4.411%, respectively. This move came immediately after President Donald Trump raised concerns about potential antitrust violations regarding Netflix's attempt to acquire Warner Bros.