Fed Turns Hawkish, New York Stocks Fall... Domestic Market Expected to Open Lower [Good Morning Market]

Nine Fed Members Expect Rate Hike This Year
Dollar and Treasury Yields Soar, Big Tech Takes a Hit
Focus on Defensive Power of Domestic Semiconductor Stocks

Expectations are rising that the U.S. Federal Reserve (Fed), under the leadership of new Chair Kevin Warsh, will begin raising interest rates within the year, leading to a weak close in the New York stock market. The domestic stock market is also expected to open lower due to the hawkish tone of the Federal Open Market Committee (FOMC) and concerns about the rapid rally over the past five consecutive trading days.

On the 17th, the KOSPI index opened at 8622.13, down 104.47 points from the previous trading day, displayed on the electronic board showing the status of the domestic stock market in the dealing room of Hana Bank headquarters in Jung-gu, Seoul. Photo by Kang Jin-hyung

On the 17th (local time), the Dow Jones Industrial Average closed at 51,493.16, down 506.51 points (0.97%) from the previous session in the New York stock market. The S&P 500 Index fell by 91.22 points (1.21%) to 7,420.13, while the tech-heavy Nasdaq Composite Index dropped by 354.69 points (1.34%) to 26,021.66.

Major big tech companies led the decline, including Microsoft (-3.80%), Meta (-5.44%), Alphabet (-2.53%), and Amazon (-3.46%). SpaceX also fell by 4.95% for the first time since its listing. In contrast, memory chip manufacturers such as Micron Technology (2.20%) and Western Digital (4.56%) maintained upward momentum.

The Fed, at its first monetary policy meeting under Chair Kevin Warsh, kept the benchmark interest rate unchanged at 3.50-3.75%. However, a significant number of members signaled the possibility of rate hikes within the year, increasing market expectations for a rate increase. In the dot plot of economic projections released in March, Fed members anticipated one rate cut this year (median 3.4%), but in the latest revised outlook, they shifted to projecting one rate hike (median 3.8%). As many as nine members now expect at least one rate hike this year.

The interest rate futures market has also raised its expectations for a rate hike by the Fed within the year. According to the CME FedWatch tool, by the close of the New York stock market that day, the interest rate futures market reflected an 86% probability that the Fed would raise rates at least once by December. Just a day earlier, this probability stood at 60%.

As the Fed's monetary policy outlook turned more hawkish (favoring monetary tightening), yields on the two-year U.S. Treasury, which is sensitive to monetary policy, surged. According to electronic trading platform Tradeweb, at the close of the New York market, the yield on the two-year U.S. Treasury was 4.21%, up by a significant 0.17 percentage points from the previous session. The yield on the 10-year U.S. Treasury was recorded at 4.499%, up 0.07 percentage points from the previous session.

The outlook for a Fed rate hike also sent the dollar soaring. The dollar index, which measures the value of the U.S. dollar against six major currencies, surged by 0.9% to 100.45 by the close of the New York market.

International gold prices fell due to heightened expectations of a U.S. rate hike and the stronger dollar. According to Reuters, as of 2:40 p.m. Eastern Time, the spot price of gold stood at $4,299.89 per ounce, down 0.7% from the previous session.

International oil prices rebounded after U.S. President Donald Trump stated that the memorandum of understanding (MOU) for a ceasefire with Iran was not a final agreement between the two sides and warned that airstrikes would resume if Iran did not act properly. Brent crude futures closed at $79.55 per barrel, up 0.7% from the previous session, while West Texas Intermediate (WTI) futures ended at $76.79 per barrel, up 1.0% from the previous session.

Han Ji-young, a researcher at Kiwoom Securities, said, "Although the hawkish FOMC and U.S.-Iran ceasefire noise may expose the market to potential correction pressure, it will likely be limited to a moderation in pace. We expect leading stocks such as semiconductors to provide downside support and help recoup intraday losses as the session progresses."

This content was produced with the assistance of AI translation services.