The US stock markets experience turbulence post-Federal Reserve decision.
Yesterday, impressive inflation data from the United States brought about an optimistic mood among American investors. However, this optimism was short-lived as the Federal Reserve's interest rate projections took center stage the following day, causing disappointment – analysts anticipate only a single rate cut this year.
At the New York Stock Exchange, there was a fierce debate over the interpretation of the interest rate situation. While the market received a boost from the speculation of a possible rate cut, hawkish statements from the Federal Reserve gradually became more prominent, causing the day's gains to reverse drastically. Traders felt that the Fed's comments had been underestimated the previous evening.
The Dow Jones Index dropped 0.2% to 38,647 points, while the S&P-500 and Nasdaq Composite both went up by 0.2% and 0.3%, respectively. The Nasdaq hit a new record high. Based on preliminary data, there were 1,040 winners and 1,775 losers on the NYSE, with 61 unchanged securities.
The market initially put more importance on the positive inflation data rather than the Federal Reserve's interest rate projections. Traders were more occupied with the favorable inflation news, hoping that further similar reports may lead to quicker interest rate cuts. As analyst Henry Allen of Deutsche Bank pointed out, "[Traders] were more focused on the positive inflation news."
Inflation Statistics Versus Hawkish Fed
Initially, consumer prices were the focus, with the previous day's data fueling interest in rate cuts. They fell compared to the previous month, while economists expected a slight increase. In the core rate, prices remained the same – which was contrary to the consensus projection of a rise in prices. Additionally, weekly and less-than-impressive labor market numbers fueled further speculation about interest rate cuts.
However, traders remembered the Fed's statements. The Fed had signaled only one rate cut this year the previous evening. In comparison, there had been three in March. On the market, there was speculation about two rate cuts. "It's audacious to go against the Fed," warned a trader.
The Bounce Back of Tech Titans
The excitement surrounding tech giants eased slightly during the day. Heavyweights like Nvidia surged 3.5%, reaching a new all-time high. Apple gained 0.5% after a volatile trading session. Intel decreased 1.0%. Additionally, a class-action lawsuit against Apple, accusing the company of wage discrimination against women, weighed on the title throughout the day.
Elon Musk, the CEO of Tesla, made yet another headline. He claimed that shareholders had approved a $46 billion compensation package for him. However, this was not the reason for the 3% increase in the Tesla stock price. Tesla plans to raise the prices for the Model 3 in Europe due to tariffs on Chinese imports. Chip and software manufacturer Broadcom announced a 1:10 stock split and reported another quarter with robust demand, with nearly a quarter of the revenue coming from AI products. Broadcom soared 12.2%.
Virgin Galactic, founded by billionaire Richard Branson, plans a 20:1 stock consolidation to keep its stock listed on the New York Stock Exchange. The stock tumbled 14.3%.
Dave & Buster's Entertainment lost 10.9%. The restaurant and amusement park operator reported another quarter with dwindling sales. The apparel retailer Torrid Holdings (+0.8%) benefited from increased customer frequency and efficient inventory management in the first quarter. Signet Jewelers dropped 14.9% – a weak outlook put off investors.
Yields Continue to Decrease
At the bond market, yields continued to decrease due to the new inflation data and the subsequently signaled interest rate cuts. However, the market assumes two interest rate cuts in 2024.
The Dollar followed the Fed's plans. It had already lost considerable ground the previous day, allowing it to rebound slightly – the Dollar Index gained 0.5%. Societe Generale explained that the Dollar was matching the Fed's moves "with notable enthusiasm."
At the oil market, prices dropped slightly. The International Energy Agency lowered its oil demand forecast and cautioned about an oversupply. Ritterbusch described the supply and demand balance as fairly bearish for prices. Gold losses were noted due to the Dollar's recovery – despite falling market interest rates. Analyst Chris Weston of Pepperstone explained that investors trusted the Fed more than market hopes about interest rate cuts.
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Wall Street reacted to the Federal Reserve's interest rate projections, with traders feeling that the Fed's comments had been underestimated, resulting in a reversal of the day's gains for the Dow Jones Index. Despite Boeing's troubles, the S&P-500 and Nasdaq Composite continued their upward trend, with the Nasdaq hitting a new record high.
Following the Fed's interest rate turnaround, investors started to pay closer attention to the potential impact on interest rates in 2024, causing yields at the bond market to decrease further, despite the initially positive inflation data.
