Wall Street Weakens After Fed Leaves Interest Rate Hike Open
US stocks closed lower after the Federal Reserve kept interest rates unchanged but signaled that a hike is still possible this year. The S&P 500 fell 1.2%, the Nasdaq 100 fell 1%, while the Dow Jones Industrial Average lost 507 points from its record high.
Pressure arose after the Summary of Economic Projections from the June meeting showed that half of the FOMC members expected one or more rate hikes this year. This projection reinforces the view that the Fed does not yet view inflation as a fully contained risk.
Underlying inflation data pointing to rising prices and a still-strong labor market are the main reasons for the central bank's cautious stance. Although the economy faces pressure from the Iran war, solid labor conditions provide room for the Fed to maintain a tight policy stance for longer.
Fed Chairman Kevin Warsh omitted the dot in his interest rate projections, reflecting his intention to change the central bank's monetary communication framework. This stance led the market to believe that the Fed's policy direction could become less reliant on explicit guidance and more responsive to data.
Risk assets came under pressure as a selloff in the Treasury market pushed yields higher. In terms of market transmission, rising yields increased the discount cost of stock valuations, particularly in the large technology sector, which is sensitive to interest rate expectations.
The Magnificent Seven stocks led the decline. Meta fell 4.2%, Microsoft fell 3.6%, Alphabet fell 2.4%, and Amazon fell 3.1%. This pressure indicates investors are again reducing exposure to large-cap stocks after the Fed's signals were deemed more hawkish.
In contrast to large technology, chip stocks continued their rally. Micron rose 2.2%, Marvell strengthened 3.9%, and Intel added 3.5%. This movement indicates a selective rotation in the technology sector, with buying interest still persisting in some semiconductor stocks.
Meanwhile, the US and Iran remain on track to sign their agreement. However, this geopolitical sentiment has not been enough to offset the pressure from the US interest rate outlook. The market's next focus will be on the direction of Treasury yields, Warsh's follow-up communication, and whether upcoming inflation data strengthens the case for an interest rate hike this year.
Source: Newsmaker.id
