In a significant turn of events, the Dow Jones Industrial Average achieved a new all-time high on Wednesday, closing at 41,198.1, as market participants closely monitored remarks from Federal Reserve Governor Christopher Waller and the latest wave of corporate earnings reports. On the contrary, the Nasdaq Composite experienced a sharp decline of 2.8%, settling at 17,996.9, while the S&P 500 fell 1.4% to finish at 5,588.3.
The technology sector bore the brunt of this downturn, dropping by 3.7%, with consumer staples emerging as the most notable gainers during this trading session. Governor Waller's insights suggested that the Federal Open Market Committee is inching closer to a possible reduction in the benchmark lending rate, driven by emerging evidence of easing inflation, though he stressed that the central bank's work is far from complete.
Waller commented, "The data over the past couple of months shows the economy growing at a more moderate pace, labor supply and demand apparently in balance, and inflation slowing from earlier this year." He added, "While I don't believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted." In related news, Fed Chair Jerome Powell reportedly indicated that policymakers may not wait for inflation to fall to the 2% target before considering interest-rate cuts, sparking further market fluctuations.
The bond market reflected these sentiments, as the US 10-year Treasury yield saw a slight decline of 1.5 basis points to 4.15%, and the two-year rate decreased by 1 basis point to 4.43%. Turning to economic news, the Federal Reserve's latest Beige Book reported that economic activity in the majority of districts has been advancing at a "slight to modest" pace since mid-May, with projections indicating slower overall growth in the forthcoming six months, largely due to uncertainty surrounding inflation and the upcoming presidential election.
In real estate, US housing starts surprised analysts by rising last month from May's revised levels, buoyed by an uptick in multi-family building projects, as indicated by government data. Manufacturing data also painted a more positive picture than initially anticipated, with US industrial production increasing more than expected last month, despite a deceleration in manufacturing output that was predicted by analysts. The Mortgage Bankers Association reported a rebound in mortgage applications following two weeks of declines, as refinancing activity surged to its highest level since August 2022 due to falling interest rates. In the commodities market, West Texas Intermediate crude oil prices rose by 2.7% to $82.90 per barrel, influenced by a more significant draw in commercial crude stockpiles in the US than was expected, according to the Energy Information Administration. In corporate headlines, semiconductor stocks faced downward pressure following a report from Bloomberg News indicating that President Joe Biden is contemplating severe trade restrictions if chipmakers continue allowing China access to advanced semiconductor technology.
This news led to substantial stock losses in the tech sector, with Nvidia ($NVDA) shares falling by 6.6%. ASML ($ASML) was not spared either, tumbling 13% to mark the largest decline on the Nasdaq, while Advanced Micro Devices ($AMD) shed 10%, making it among the worst performers on both the Nasdaq and the S&P 500, alongside Applied Materials ($AMAT).
On a more positive note, Elevance Health ($ELV) reported better-than-expected second-quarter results, despite a significant decline in memberships for its Medicaid plans; CEO Gail Boudreaux affirmed that the health insurer is maintaining its full-year earnings outlook. However, the company's shares still dropped 5.8%.
Notably, Johnson & Johnson ($JNJ) emerged as a strong performer, recording a 3.7% increase, making it the second-best gainer on the Dow after the healthcare products conglomerate announced second-quarter results that exceeded analysts' estimates. Nevertheless, the company also revised its full-year earnings outlook downward, accounting for the implications of recent acquisitions.
In other market movements, gold prices slipped by 0.3%, settling at $2,461.70 per troy ounce, while silver took a greater hit, falling 3% to $30.50 per ounce. Market players continue to navigate through a complex economic landscape, balancing Federal Reserve signals, corporate earnings, and global economic indicators amidst a backdrop of geopolitical uncertainties..