U.S. Stock Market Plummets Despite Shutdown End [Morning Briefing]

◆ New York stocks tumble, selling after shutdown ends

The three major U.S. stock indices closed sharply lower. Although the U.S. federal government shutdown was lifted, the market exhibited the trading pattern of "buy the rumor, sell the news." After news of the shutdown's end circulated, market participants turned their attention back to concerns about an artificial intelligence (AI) bubble and the path for interest rate cuts, and they initially responded with heavy selling. On the 13th Eastern Time at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 47,457.22, down 797.60 points (1.65%) from the previous session. The S&P 500 fell 113.43 points (1.66%) to 6,737.49, and the Nasdaq Composite plunged 536.10 points (2.29%) to 22,870.36. Some analysts attributed the decline to growing views that further rate cuts by the U.S. central bank may be difficult despite the end of the shutdown. The White House had said the day before that macroeconomic data releases such as the consumer price index (CPI) might be skipped because of the shutdown. In particular, Kevin Hassett, chair of the White House Council of Economic Advisers, noted that the October employment report was scheduled to be released but would not include the unemployment rate. That uncertainty reduced the probability of a Fed rate cut in December to 50%, down sharply from about 95% a month earlier. Technology stocks plunged amid concerns about an AI bubble. U.S. marquee tech stocks Nvidia and Tesla fell 3.58% and 6.64%, respectively. As a result, the seven big tech stocks all declined except for Meta, which rose slightly (0.14%). As U.S. stocks plunged, cryptocurrencies also fell across the board, with Bitcoin's $100,000 level collapsing.

◆ Fed officials repeatedly say "holding rates steady is appropriate"…expectations for cuts fall

About a month before the Federal Open Market Committee (FOMC) policy meeting, hawkish Fed officials advocating holding the policy rate at its current level have been making public remarks. Cleveland Fed President Beth Hammack said yesterday at an Economic Club discussion in Pittsburgh, Pennsylvania, "I think it is necessary to keep monetary policy somewhat restrictive to bring inflation back to the target level (2%)." President Hammack had also said in a public speech on the 6th that the current policy stance is only slightly restrictive and expressed a negative view toward further rate cuts. Although Hammack does not have a vote at the December FOMC meeting, Wall Street has been paying attention to her remarks because she will have a vote next year. St. Louis Fed President Alberto Musalem also said at a public event in Indiana that "we need to proceed cautiously" and "I think there's limited room to ease further without monetary policy becoming too accommodative relative to fiscal policy." Musalem will have a vote at the December FOMC meeting. Boston Fed President Susan Collins also said the day before, "Based on my baseline outlook, it seems appropriate to keep the policy rate at the current level for a while to balance the risks between inflation and employment in this very uncertain environment," expressing a negative view on further rate cuts.

So-yeon Kim, Hankyung.com reporter sue123@hankyung.com