[New York Market Briefing] Mixed Close Despite Rate Cut…Volatility on Powell's Remarks

The three major U.S. stock indexes closed mixed. Despite the U.S. Federal Reserve (Fed) implementing the year's first policy rate cut, markets swung as participants interpreted mixed signals about the path of further cuts.

On the 17th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 46,018.32, up 260.42 points (0.57%) from the previous session. The S&P 500 fell 6.41 points (0.10%) to 6,600.35, and the tech-heavy Nasdaq Composite dropped 72.63 points (0.33%) to 22,261.33.

At the FOMC regular meeting that day, the Fed cut its policy rate by 0.25 percentage point, from 4.25–4.50% to 4.00–4.25%, as markets had expected. It was the first cut in nine months, and the first time since the Donald Trump administration.

The S&P 500 showed intraday weakness but turned higher after the Fed's rate cut decision and the economic projections (SEP) that reflected expectations for two rate cuts this year were interpreted as 'dovish' (favoring monetary easing). However, the index swung again and turned down after Chairman Powell's press conference.

At the press conference, Powell said the rate cut was decided taking into account increased downside risks to the labor market, while emphasizing that "the economy is not bad." He also described the cut as a 'risk management' move.

The market, which had expected clearer signals about further cuts, interpreted Powell's remarks as 'hawkish' (favoring monetary tightening).

The wide dispersion in Fed officials' rate projections reflected in the dot plot also contributed to greater uncertainty about the future path of monetary policy.

The bond market also showed mixed reactions to the FOMC outcome and Powell's comments. According to electronic trading platform Tradeweb, the 10-year U.S. Treasury yield was 4.07% around the close of the New York market, up 0.04% percentage points from the previous session. The 2-year Treasury yield, which is sensitive to monetary policy, was 3.55%, up 0.04% percentage points from the prior close.

U.S. Treasury yields fell intraday as the Fed's cut and economic outlook were interpreted dovishly, but rebounded when Powell's press conference was interpreted more hawkishly.

Christopher Rupkey, chief economist at FWD Bonds, said, "By opting for the smallest possible cut at this meeting, FOMC members have not fallen into a state of panic," adding, "A single-rate-cut per meeting implies the Fed no longer views tariff-driven inflation as a serious threat and that employment concerns have become a higher priority than stagflation."

By sector, consumer staples and financials rose nearly 1%, while technology fell 0.7%.

Among megacap tech firms with market caps over $1 trillion, Nvidia and Broadcom saw declines of around 3%. Nvidia's losses widened after reports that the Chinese government banned domestic firms from buying the latest AI chips.

By contrast, Chinese tech firms attracted buying. Alibaba, China's largest e-commerce company, rose more than 2% on news it secured a major customer for its own AI chips, and Pinduoduo jumped more than 4%.

U.S. ride-hailing platform Lyft surged 13% after reports it struck a commercial deal with Waymo, the autonomous driving unit owned by Google's parent company Alphabet.

Meanwhile, rate futures markets raised expectations that the Fed will cut rates twice this year. According to the CME FedWatch, rate futures priced in an 80.8% probability that the Fed will lower rates by 0.5 percentage points by December from current levels, up from 69% the previous day.

Conversely, the probability of one 0.25 percentage point cut or three 0.75 percentage point cuts by December was priced at 0%.

Reporter KOSANGSAM HanKyung.com jsk@hankyung.com