Fed's Deputy Sparks Surge in New York Stocks

The U.S. New York stock market, which caused a "Black Friday" by significantly lowering major stock indices in South Korea, Japan,...

The U.S. New York stock market, which caused a "Black Friday" by significantly lowering major stock indices in South Korea, Japan, and Europe, saw widespread gains on the 21st (local time). The market experienced high volatility during the week due to earnings reports from AI company NVIDIA and U.S. employment data, and it reacted strongly after a senior Federal Reserve official suggested the potential for a rate reduction. Nevertheless, worries about overvaluation in the AI sector remain, and with the Fed's interest rate plans for next month still uncertain, analysts warn against excessive optimism.

Rising Hopes for a December Interest Rate Reduction

All major New York stock indices increased during the day. The Dow Jones Industrial Average rose by 1.1%, while both the S&P 500 and Nasdaq Composite indices climbed roughly 0.9%. The market's performance was influenced by comments made by John Williams, president of the Federal Reserve Bank of New York and the Fed’s second-highest-ranking official. Alongside the seven members of the Federal Reserve Board, Williams holds a permanent voting position on the Federal Open Market Committee (FOMC). The Financial Times (FT) stated, “He is the second-most powerful figure in meetings following Fed Chair Jerome Powell.” During a speech at an event in Santiago, Chile, Williams said, “I think there is still space to adjust rates further in the near future” and also mentioned, “The current rate range of 3.75–4% is still considered ‘restrictive.’” Although the market had been volatile, uncertain about whether the Fed would lower rates during its meeting on December 10th, investors viewed Williams' statements favorably. CNBC reported, “New York stocks recovered after Williams suggested the Fed might cut rates again.”

U.S. Treasury yields also decreased. The 2-year Treasury yield, which is responsive to monetary policy, dropped by 0.05 percentage points to 3.51%, while the 10-year yield fell by 0.02 percentage points to approximately 4.08%. Treasury yields and prices typically have an inverse relationship, and standard interest rates along with Treasury yields usually change in a similar manner. The CME FedWatch Tool, which forecasts U.S. benchmark rates, increased the likelihood of a Federal Reserve rate reduction in the coming month to 69.5%, almost 35 percentage points higher than the prior day.

New York Stock Exchange Recovers, Yet Doubt Remains

Despite gains in New York stocks, worry remains significant. The New York Times (NYT) stated, "concerns about an AI bubble are leading to major market swings, with investors showing more nervousness than seen since April, when U.S. President Donald Trump triggered a trade conflict." This feeling was evident in the day's trading: NVIDIA decreased by 1.0%, Microsoft fell by 1.3%, AMD dropped 1.1%, and Tesla slipped by 1.0%.

The Wall Street Journal stated, “Investors are becoming more concerned about major technology firms utilizing extensive and complicated debt deals to finance AI infrastructure projects.” The S&P 500, which is dominated by large-cap stocks, has dropped more than 5% since reaching a record peak on the 28th of last month. Bloomberg reported, “The S&P 500 is heading for its worst month since March, an unexpected development considering the index's typically solid performance during November.”

Analysts hold differing opinions. In a report, Barclays analyst Emmanuel Cau mentioned, "After speaking with numerous clients this week, it's evident that major concerns involve generating returns from the significant capital investment surge, electricity demand, and cyclical financing issues," noting, "Nobody questions that the growth will persist, but there is increasing worry that it might not yield profits in the long run." On the other hand, the NYT quoted some analysts who claimed, "The present drop is due to exhaustion rather than a fundamental change in the market."

In the meantime, Bitcoin also experienced a significant drop. As per CoinMarketCap, Bitcoin was trading at approximately $84,000 per coin, marking a decrease of more than 2% compared to 24 hours prior. The Financial Times noted, "Bitcoin has dropped over 20% in value this month and is heading towards its worst performance since the downfall of the cryptocurrency exchange FTX in 2022." Certain experts caution that the substantial fall in the crypto market might reduce the ability of individual investors to allocate funds into stocks.