[NYSE Market Briefing] Major Indices Plunge on Deteriorating Consumer Sentiment... Nasdaq Down 2.2%

The three major indices of the New York stock market plunged simultaneously. This appears to be triggered by selling due to deteriorating consumer sentiment supporting the U.S. economy and inflation uncertainty.

On the 21st (local time), the Dow Jones Industrial Average closed at 43,428.02, down 748.63 points (1.69%) at the New York Stock Exchange (NYSE). The Standard & Poor's (S&P) 500 index fell 104.39 points (1.71%) to 6,013.13, while the tech-heavy Nasdaq Composite closed at 19,524.01, down 438.36 points (2.20%).

The sharp decline in the consumer sentiment index, which reflects U.S. consumers' economic confidence, had a significant impact on the overall financial market. According to the University of Michigan, the final consumer sentiment index for this month was 64.7. This is down 7 points from 71.7 the previous month. It also fell below both the preliminary February figure of 67.8 and market expectations of 67.8 announced on the 8th of this month.

The surge in expected inflation also unsettled the market. The final one-year expected inflation rate for February jumped 1.0 percentage points to 4.3% from 3.3% the previous month. The five-year long-term expected inflation also rose 0.3 percentage points from the previous month to 3.5%, the highest level since 1995.

Inflation uncertainty also surged. One-year uncertainty increased from 7.6 percentage points to 9.5 percentage points, and 5-10 year uncertainty rose from 6 percentage points to 8.2 percentage points.

Neil Dutta, Head of Economic Analysis at Renaissance Macro Research, analyzed that "tariffs influenced the surge in consumers' inflation expectations" and noted that "the most important aspect is that long-term expected inflation reached a 30-year high due to concerns about Donald Trump's tariff policies."

The contraction in U.S. services sector activity for the first time in 25 months also weighed on investor sentiment.

According to S&P Global, the preliminary U.S. Services PMI for February came in at 49.7, entering contraction territory for the first time since January 2023.

While the preliminary Manufacturing PMI for February recorded 51.6, its highest in 8 months, the market focused more on the slowdown in the services sector, which has a larger share in the U.S. economy.

As consumer sentiment declined, overall market investment sentiment also froze rapidly.

The Philadelphia Semiconductor Index, composed of AI and semiconductor-related stocks, plunged over 3%. All 30 component stocks fell, with Nvidia and Broadcom leading the decline with drops of around 4%.

The 'Magnificent Seven' mega-tech companies were all directly hit. While Apple held relatively steady with a slight decline, Tesla fell more than 4%. Amazon and Alphabet dropped around 2%, while Microsoft and Meta Platforms were down over 1%.

America's largest insurer UnitedHealth Group plunged over 7%. The sell-off came as the Justice Department began investigating allegations that the company profited from Medicare (social security system for elderly and disabled) budget by overcharging medical fees.

U.S. AI data analytics firm Palantir fell nearly 5% again today. News that the U.S. Department of Defense could cut its annual budget by 8% acted as negative factor.

However, consumer staples stocks like Procter & Gamble, Johnson & Johnson, Coca-Cola, McDonald's, PepsiCo, AT&T, and Verizon all rose on analysis that demand would persist despite consumer slowdown.

Moderna's stock also rose more than 5% following news of a new coronavirus strain detected in China. Other pharmaceutical companies including Pfizer and Amgen also saw concurrent rises.

By sector, only consumer staples rose 1% while all others fell. Consumer discretionary dropped 2.77%, industrials fell 2.23%, and technology declined 2.45%. Telecommunications services, energy, and financials also fell over 1%.

Larry Tentarelli, Chief Technical Strategist at Blue Chip Daily Trend Report, said "Today's top 20 performers in the S&P 500 were all defensive stocks in consumer staples, utilities, and healthcare" and added "Investors often move to defensive stocks when concerns about economic growth emerge."

U.S. existing home sales also plummeted. According to the National Association of Realtors (NAR), existing home sales in January fell 4.9% from the previous month to an annualized rate of 4.08 million units, seasonally adjusted.

According to the CME FedWatch Tool, the probability of interest rates remaining unchanged next month was 95.5%, down 2 percentage points from yesterday's close. The probability of rates staying unchanged through June plunged to 36.0% amid growing economic slowdown concerns, down from 47.2% at yesterday's close.

The CBOE Volatility Index (VIX) rose 2.55 points (16.28%) from the previous session to 18.21.

JSK@hankyung.com