US Market Reaction To FOMC Minutes, US-Iran Ceasefire Collapse: Why Dow Jones Crashed 855 Pts & Nasdaq Gained?

The US stock market showcased a broadly mixed reaction to the FOMC minutes and new tensions betweethe Nasdaqnd Iran. Overnight, the Dow Jones collapsed almost 600 points and the S&P 500 index followed the bearish trend, but the tech-heavy index, Nasdaq Composite, surged owing to fresh buying in chip stocks. FOMC minutes indicate a split in opinions of Fed members regarding interest rates. Broadly, the US Federal Reserve is hawkish ahead.

US Stock Market:

The Dow Jones Industrial Average or DJIA dropped by at least 855 points to hit an intraday low of 52,069.87. The index closed at 52,348.39, registering a decline of 576.76 points or 1.09%.

Heavyweight indices like American Express Co., Boeing Co., Procter & Gamble Co., JPMorgan Chase & Co., Merck & Co. Inc., Salesforce Inc., and Honeywell International Inc. had crashed by 2% to 4%, dragging Dow Jones significantly.

Another reason for the crash is also the renewed geopolitical risks between US and Iran. Yesterday, sirens once again flared and sounds of kabooms echoed in the Middle East as the US and Iran went against each other, nullifying the ceasefire agreement. The US military launched a new series of airstrikes on over 80 targets in Iran, which included air defence systems, missile sites, radar installations and naval assets around Strait of Hormuz. The attack was in response to Iran's assault on commercial vessels that transitioned from Hormuz.

"To me, I think it's over. I don't want to deal with them anymore. They're scum... They're led by sick people... I'll speak to our negotiators. They want to negotiate-they're good people... but they have to come back to me. As far as I'm concerned, it's just a waste of time dealing with them," US President Donald Trump told reporters.

The new tensions were enough to push crude oil prices higher. US WTI Crude rallied about 6% to trade near $75 per barrel and Brent Crude surged to near $79 per barrel. Meanwhile, US dollar climbed above 101 due to inflationary pressures, stemming from the conflict.

"Investor sentiment remains under pressure after the United States launched fresh strikes on Iran, with U.S. President Donald Trump stating that the ceasefire is "over." The renewed military action has heightened concerns over regional stability and raised fears of potential disruptions to global energy supplies," said Ponmudi R, CEO of Enrich Money.

Meanwhile, FOMC minutes indicated a hawkish stance ahead.

Following the similar trend, S&P 500 closed at 7,482.71, lower by 21.14 points or 0.28%.

Nasdaq Composite Index

On the other hand, Nasdaq Composite surged by 51.96 points or 0.20% to close at 25,870.65. The reason behind the uptrend is strong buying in technology stocks. Nvidia rallied by 3.65%, while Broadcom gained 4.83%. Samsung zoomed by 2.70%, and Apple gained 1%. Also, chip stocks like Sandisk skyrocketed by 7%, while Micron and DELL advanced by 1.1% and 3.52%.

FOMC Minutes:

In its June policy minutes, FOMC said, "Participants anticipated that inflation would remain elevated in the near term and then begin to decline as the effects of tariffs and energy price increases wane and other supply disruptions related to the closure of the Strait of Hormuz diminish."

"Participants judged that the risks to the inflation outlook were still tilted to the upside. Many participants noted that elevated commodity prices and supply disruptions could persist longer than currently anticipated," it added.

With regard to the labor market, FOMC minutes said, " participants generally observed that the unemployment rate had remained relatively stable over the past year at a level near participants' estimates of its longer-run level. Participants generally remarked that payroll employment gains had strengthened this year and appeared roughly consistent with underlying labor force growth. "

Furthermore, it said, "Participants generally expected solid real GDP growth to continue throughout the remainder of the year and pointed to several factors likely to support continued expansion, including ongoing AI-related investment, household spending, and fiscal policy."

With regard to the outlook for monetary policy, FOMC said, "amid high assessed uncertainty, various participants discussed a range of scenarios for the evolution of the economy and for future monetary policy actions.

Taking into consideration the most likely scenario for economy, FOMC minutes said, "many participants indicated that the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year. "

Meanwhile, many others assessed that the appropriate level of the federal funds rate would be above the current target range at the end of this year. Participants noted that their future policy actions would depend on incoming information, as per FOMC.

During the June 16-17 meeting, Fed chair Kevin Warsh and FOMC members voted to keep federal fund rates unchanged to 3.5%-3.75%.

On Thursday, investors are now awaiting the latest weekly jobless claims and existing home sales figures for fresh clues on the interest rate outlook. Earnings reports from PepsiCo, Progressive, Cintas, and other major companies are also due, as per Trading Economics.