U.S. Stock Market Enters Correction... Fed Rate Cut Expected in May

# Nasdaq Decline Spurs Fed Policy Speculation The Nasdaq index has slid more than ten percent from its recent peak, entering a correction phase and fueling speculation about shifts in Federal Reserve (Fed) monetary policy. While Fed Chair Jerome Powell has recently indicated no rush to cut interest rates, concerns persist over inflation and global trade tensions, exacerbated by tariff uncertainties stemming from the Trump administration. Compounding these issues, deteriorating employment figures have raised fears of stagflation. This has led to increased anticipation in the U.S. interest rate futures market that the Fed might advance a rate cut to May. On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 890.01 points, or 2.08 percent, closing at 41,912.35. The S&P 500 plummeted 2.69 percent to 5614.56, and the Nasdaq dropped sharply by four percent to end the session at 17,468.33. The Nasdaq plunged more than five percent intraday, recording its worst day since September 2022, and marking a fall of over 14 percent from its peak. Generally, a decline of at least ten percent from a peak is considered a correction, while a drop of 20 percent or more signals a bear market. # Economic Impacts and Market Reactions According to Samsung Securities analyst Seo Jung-hoon, "The New York stock market experienced substantial declines due to heightened concerns that the Trump administration's aggressive tariff policies could cause an economic slowdown." He added, "Trump's comments, which suggested he wouldn't provide put options to defend financial markets, were interpreted as a willingness to endure short-term shocks." The plunge in U.S. equities reverberated through Asian markets. South Korea’s KOSPI fell more than two percent at opening, while Japan’s Nikkei 225 dropped 2.70 percent, China’s Shanghai Composite decreased 0.56 percent, Hong Kong’s Hang Seng slipped 1.68 percent, and Taiwan’s TAIEX lost 2.73 percent. U.S. stock futures also pointed to continued declines, with Dow futures down 0.40 percent, S&P 500 futures off 0.81 percent, and Nasdaq futures slipping 1.22 percent. The dramatic drop in the New York stock market has bolstered expectations that the Fed might cut rates in May. Recently deteriorating employment indicators have also played a role; the U.S. unemployment rate for February increased to 4.1 percent from the previous month, while nonfarm payroll growth of 151,000 missed Wall Street’s forecast of 160,000. # Rate Cut Speculation Intensifies According to the CME FedWatch Tool, the likelihood of at least three rate cuts within the year has grown in the federal funds futures market. As of today, the probability of a 25 basis point cut in May rose to 47.2 percent, up 11 percentage points from the day before and 20.9 percentage points over the past month. The chance of a 50 basis point cut in June hit 41.6 percent, up from 10.5 percent a month ago, with the likelihood of a 25 basis point cut surpassing fifty percent. Analysts predict that mounting concerns about U.S. stagflation will drive the Fed's rate decisions, particularly given upcoming releases of key economic indicators like inflation data and consumer sentiment indexes. Kim Ji-won, an analyst at KB Securities, stated, “The U.S. ten-year Treasury yield fell sharply to 4.21 percent as President Trump's comments suggested a willingness to tolerate economic recession, increasing the probability of a rate cut at the May meeting from 36 percent to 47 percent.” Mirae Asset Securities analyst Seo Sang-young highlighted that “historically, sharp contraction phases tend to see strong rebounds,” pointing to factors like the passage of temporary budget bills, potential government shutdown, JOLTs report releases, and inflation data as significant near-term variables.