The three major New York stock market indexes closed higher after experiencing extreme volatility.
Investor sentiment had initially weakened as the Federal Open Market Committee (FOMC) held the benchmark interest rate steady amid growing stagflation concerns, and Federal Reserve (Fed) Chair Jerome Powell indicated uncertainty about interest rate cuts this year.
However, in the late session, buying interest surged following news that the Donald Trump administration had decided to abolish regulations related to artificial intelligence (AI) chips, leading to a market rebound.
On Tuesday (May 7th, Eastern Time), the Dow Jones Industrial Average at the New York Stock Exchange (NYSE) closed at 41,113.97, up 284.97 points (0.70%) from the previous trading day.
The Standard & Poor's 500 index rose 24.37 points (0.43%) to 5,631.28, and the Nasdaq Composite Index climbed 48.50 points (0.27%) to finish the session at 17,738.16.
Major stock indexes exhibited extreme volatility throughout the day, influenced by expectations of US-China trade negotiations, the FOMC meeting, Powell's press conference, and the reversal of AI chip regulations.
Before the market opened, Asian market sentiment was supported by news that the United States and China would begin trade negotiations.
US Treasury Secretary Scott Bethune announced that he would meet with China's economic czar, Vice Premier He Lifeng, in Switzerland this Saturday. The Office of the United States Trade Representative (USTR) also stated that Representative Jamieson Greer plans to meet with Chinese counterparts in Switzerland to discuss trade issues.
Anticipation that US-China trade negotiations would finally commence led to a sharp rise in stock index futures in Asian markets.
However, these gains were tempered when Bethune stated that the upcoming meeting should not be seen as a sign of progress in US-China negotiations.
In the afternoon, investor sentiment fluctuated significantly following the FOMC meeting results and Powell's remarks.
In its statement that day, the FOMC added language indicating increased risks to both unemployment and inflation. The market interpreted this as heightened stagflation concerns, leading to a shift towards selling.
Powell's press conference was also perceived as hawkish.
Powell stated that the Fed would wait "for some time" until clarity improves. He also said that he could not definitively say whether there would be interest rate cuts this year.
These remarks were interpreted as signaling no interest rate cuts in the first half of the year at least, triggering disappointment-driven selling.
However, stock prices rebounded sharply in the late session as news strongly stimulated buying sentiment.
Major foreign media outlets reported that US President Donald Trump decided to abolish AI chip regulations that had been introduced by the previous Joe Biden administration. This was analyzed as positive for the AI industry, causing the S&P 500 index to surge by 40 points in just 30 minutes.
This action can be seen as a relaxation of export controls on AI chips. However, as the Trump administration is reportedly preparing new regulations to strengthen controls on semiconductor exports, the long-term impact of this measure remains to be seen.
The news of the AI chip regulation reversal cheered the Philadelphia Semiconductor Index, which jumped by 1.74%.
Nvidia rose by 3.1%, while Broadcom, ASML, and Qualcomm also gained around 3%.
Among the mega-cap tech companies, Amazon and Meta Platforms both rose by around 2%, and Microsoft was slightly positive. In contrast, Apple fell by more than 1%.
Google's parent company, Alphabet, notably plunged by over 7%.
Analysts suggest that a negative outlook from Apple's head of services, Eddy Cue, who stated in the Justice Department's lawsuit against Alphabet that AI search engines would eventually replace standard search engines like Google, negatively impacted the stock.
AMD reported first-quarter earnings that exceeded expectations and rose by 1% on the back of the anticipated AI chip regulation reversal.
According to the CME FedWatch Tool, the probability of the benchmark interest rate being held steady in June was reflected at 76.7% in the federal funds rate futures market, indicating a prevailing view of a June rate pause.
Following this FOMC meeting, the most likely scenario for the end of the year was a total of three 25 basis point (bp, where 1bp = 0.01 percentage point) interest rate cuts, with a probability of 38.3%.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) fell by 1.21 points (4.89%) to 23.55.
[Copyright (c) Global Economic Times. All Rights Reserved.]
