Mixed U.S. markets amid investor caution as FOMC begins

Tesla continues to rise and Oracle rises on participation in TikTok consortium

On the 16th (local time), when the Federal Open Market Committee (FOMC), which sets the U.S. benchmark interest rate, began, the New York stock market showed mixed trading as investors remained on the sidelines.

The S&P 500 briefly surpassed the previous day's high to 6,624.13 shortly after the open but turned lower and was down 0.1% at 10:10 a.m. Eastern time. The Nasdaq Composite was trading around 22,350 points, similar to the previous day, and the Dow Jones Industrial Average fell 0.25%.

The yield on the two-year U.S. Treasury, which is affected by rate policy, fell 1 basis point (1bp=0.01%) to 3.518% on the day. The 10-year Treasury yield was moving around 4.037%, similar to the previous day.

After CBS News reported that Oracle is part of a consortium that would allow social media platform TikTok to continue operating in the United States, Oracle shares rose 4%.

Tesla, which has been on the rise since last Thursday, continued up 1.6% despite news that the U.S. National Highway Traffic Safety Administration (NHTSA) is investigating a door-handle defect on the 2021 Model Y. It is trading at $416.

Nvidia fell 0.8% on the day as Reuters reported weak domestic demand in China for a China-specific new AI chip, the RTX6000D, raising uncertainty about its China business.

Alphabet's Google said it will invest £5 billion over two years to support building an AI economy in the U.K. (9.44 trillion won).

As the Fed began its two-day policy meeting, investors are focused on a possible rate cut this month and on Jerome Powell's subsequent press conference for the economic outlook and the scope and dot plot of future rate cuts.

According to CME Group's FedWatch tool, rate market participants see a 96.1% chance of a 0.25bp Fed funds rate cut and only a 3.9% chance of a 50bp big cut.

Steven Myron, attending this FOMC for the first time as chair of the White House Council of Economic Advisers, is expected to argue for a big cut.

Retail sales data for August, released before the open, showed relatively resilient spending but had little impact on the market.

According to Commerce Department retail sales data for August, nominal August retail sales rose 0.6%, similar to July.

Ellen Gentner of Morgan Stanley Wealth Management said, "It is good news for the economy that U.S. consumers' sentiment appears to be improving, but it could intensify debate over how much the Fed will cut rates going forward."

Ulrike Hoffmann-Burczardi of UBS Global Wealth Management said, "We expect a 25 basis point cut this week and three more cuts of the same size in the coming months, which would be a favorable backdrop for a stock rally."

On the other hand, there are concerns that the sharp rise in the S&P 500 could become a bubble. Analysts at Seaport Research Partners pointed out that the tech sector has had a large impact on this year's gains and that the rest of the market appears somewhat overvalued.

According to data compiled by Bloomberg Intelligence, S&P 500 companies excluding the technology sector saw earnings rise only 6.4% over the past year, while stock prices rose 13%. The S&P 500 Information Technology index jumped 27%, which is not excessive given that the earnings growth rate for companies in that sector was 26.9%.

Guest reporter Kim Jeong-ah kja@hankyung.com