U.S. Federal Reserve (Fed) Chair Jerome Powell said on the 23rd (local time) that the stock market is overvalued, sending New York stocks lower at the close. A rally that had set record highs for three straight sessions snapped on a single remark from Powell.
On the 23rd at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average finished at 46,292.78, down 88.76 points, or 0.19%, from the previous session.
The large-cap-focused Standard & Poor's (S&P) 500 fell 0.55% to 6,656.92. The tech-heavy Nasdaq composite closed down 0.95% at 22,573.47, the steepest decline among the major indexes.
Powell poured cold water on a market that had set record highs for three consecutive days on the back of artificial intelligence (AI) fever and expectations of Fed currency policy easing. Speaking at an event in Rhode Island that day, Powell said, "Stock prices are, by many measures, quite highly valued."
He also struck a cautious tone on further rate cuts, calling the current situation "challenging." Powell added, "In the near term, inflation risks are to the upside and employment risks are to the downside," and "risks on both sides mean there is no risk-free path."
Powell's comments hit tech stocks particularly hard. Nvidia, which had lifted the broader market the day before by announcing a $100 billion OpenAI investment plan, fell 2.8% in a single day. Amazon and Oracle also fell more than 2% and 4.4%, respectively.
Regarding the Nvidia and OpenAI transaction, the market voiced concern that a supplier making a massive investment in a key customer evokes the dot-com bubble era. D.A. Davidson's Gil Luria, head of technology research, said, "OpenAI overextended its business with promises beyond its means, and Nvidia may have been the only equity investor willing to help OpenAI," raising the possibility that Nvidia could be "the last investor."
Even within the Fed, which had seemed likely to cut rates again this year, opinions appeared split on the direction of currency policy. Fed Governor Michelle Bowman warned, citing a gradually weakening labor market, that "the Fed may already be facing a serious risk of being behind," and supported rate cuts. By contrast, Atlanta Fed President Raphael Bostic hesitated over additional rate cuts due to inflation concerns.
Experts said Powell appears intent on keeping options open rather than signaling a specific policy path. David Russell at TradeStation said, "Powell doesn't want to clash with the White House, but he's not capitulating either," adding, "He is keeping his options open in case price pressures build."
The market expects the Fed to focus on its core mandate of employment and inflation. Evercore strategist Krishna Guha said, "Powell had the opportunity to flash warning signs about rising stock prices or hint that a market boom could lead the Fed to revisit currency policy, but he declined," adding, "He made it clear the Fed's mandate does not include targeting stock prices."