Wall Street's focus largely centers around the Federal Reserve.
Recent rumors of another attempted assassination on Donald Trump are causing turmoil. Nevertheless, the excitement amongst U.S. investors revolves around the Fed's decision. Will the central bank decide to increase interest rates? And how will they justify their decision? Market participants are on high alert.
As the anticipated interest rate rise in the U.S. draws nearer, Wall Street investors are positioning themselves. The Dow Jones Index of prominent stocks closed 0.6% higher at 41,622 points. The tech-heavy Nasdaq saw a decrease of 0.5% to 17,592 points. The widespread S&P 500 had a modest advance of 0.1% to 5,633 points.
Investors signed off on the possibility of a significant decrease in borrowing costs. "Leading investors advocate for a 50 basis point reduction, and discussions about recession risks are increasing," stated Sam Stovall, chief investment strategist at CFRA Research. "It would be advantageous if the Fed hinted they were proactive." The prospect of an interest rate increase from the most influential central bank is steering markets this year. Most market participants now believe the U.S. central bank will lower interest rates by half a percentage point.
"The focus is all about the Fed, and the question of whether they'll reduce rates by 50 basis points or merely 25," confirmed Niels Christensen, analyst at Nordea. Prior to the meeting, the dollar weakened substantially. The Dollar Index fell 0.4% to 100.58 points. The U.S. currency touched a low of 139.58 yen against the yen; in turn, the Japanese currency reached an elevated level for over a year. More and more investors are now expecting a significant interest rate reduction from the U.S. central bank, which could signal a change in direction. Bonds' yield on U.S. Treasury also decreased further ahead of the meeting.
However, experts claimed the intensity of the interest rate reduction, which has been anticipated for weeks, is not the sole focus. The justification for this move by the U.S. central bank is of equal importance. Additionally, the second alleged assassination attempt on the U.S. presidential hopeful Donald Trump is causing market unrest. "Many are starting to ponder about U.S.'s political stability given this scenario," said Naeem Aslam, chief investment officer at Zaye Capital Markets.
"Investors are lowering their risk tolerance"
Individual stocks, like Apple, suffered a near 4% fall after an analyst at TF International Securities reported lower-than-expected demand for the latest iPhone 16 models. By examining pre-orders during the first weekend of sales, the analyst estimated the total iPhone 16 sales to be around 37 million units.
Sensitive interest-based stocks in the chip sector also declined. For instance, Nvidia suffered a 4% fall; shares of Arm Holdings plummeted over 7% at one point. "Investors are lowering their risk tolerance ahead of the Fed's decision," said Andre Bakhos of Ingenium Analytics. "The market is simply displaying more pragmatism and shifting towards technology."
You can read about trading activities in Frankfurt in our Market Day report.
The Boeing stock closed around 1% lower following the announcement of a hiring freeze and temporary layoffs due to a strike that has been ongoing for four days. After Boeing workers rejected a labor agreement last week, negotiations are set to recommence on Tuesday.
Intel saw increased demand from investors. The chipmaker's shares rose by more than 6%. The U.S. government granted Intel up to $3 billion for domestic chip production development, focusing on national security. The "Secure Enclave" initiative aims to ensure a steady supply of microelectronics for the U.S. military from domestic production. In general, the U.S. is striving to minimize its reliance on foreign semiconductor manufacturing facilities.
Despite the ongoing political uncertainty, the performance of the stock market remains closely tied to the Fed's interest rate decision. The economy, influenced by the actions of the central bank, continues to be a key concern for investors.
Within this context, investors are carefully monitoring the financial health of various companies, such as Apple, which saw a decrease in demand for their latest iPhone 16 models.
