[US Stock Market Flash: 9/24] Soaring interest rates triggered by an overly strong economy! The 'market bug' and investment opportunities hidden behind the stock price decline

The US stock market faced a difficult session as major indices fell across the board, weighed down by rising crude oil prices and a sharp spike in interest rates. However, unraveling the background of this market decline reveals the tension between economic strength and inflation concerns, as well as underlying market distortions.

We deliver a condensed summary of the key points investors need to know right now, from the latest market data and macro trends to distortions in notable stocks!

📉 1. Summary of Today’s US Stock Market and Key Data

Let’s start by checking the overall market picture.

📊 Movement of Major Indices

• Dow Jones Industrial Average: $51,511.59 (-0.68%)

• S&P 500: 7,706.03 (-0.75%)

• NASDAQ: 26,936.04 (-1.13%)

• Russell 2000: 2,838.66 (-1.77%)

🛢️ Commodities, Forex, and Cryptocurrencies

📈 Bond Yields

Because the economic indicators released at 10:45 AM Japan time were extremely strong, concerns about a resurgence of inflation intensified, causing the 10-year Treasury yield to rise significantly.

🗺️ Sector and Individual Stock Trends

• Big Tech: Alphabet (Google) saw a significant decline of -3.79%, while Amazon, Broadcom, and Micron fell in the 2% range, and Nvidia dropped -1.4%. On the other hand, Microsoft and Meta saw slight gains.

• Security Software: Palantir (+3.6%), CrowdStrike, and Palo Alto Networks (approx. +5%) were bought, while Salesforce and Datadog also remained firm. Currently, a rotation of funds is occurring within the tech market where ‘if AI-related stocks fall, software is bought, and vice versa,’ so caution is advised against impulsive buying.

• Dining Out: McDonald’s fell sharply by -4.8%. Investors questioned whether the additional investments in store renovations and employee training presented at the investor briefing could dispel concerns regarding stagnant foot traffic and price affordability.

⚡ 2. Overly strong economic indicators (PMI) and a hawkish Fed push interest rates higher

The biggest trigger for the stock market decline was economic data that was stronger than imagined.

🏭 September PMI (Purchasing Managers’ Index) Flash Estimate

Both indices significantly exceeded forecasts, recording their highest levels since 2021 due to increases in new orders and employment. Business sentiment is extremely favorable in both manufacturing and services.

However, excluding the pandemic period, supply chain bottlenecks—among the most severe in the history of the survey—are occurring, and raw material costs remain high. This pressure on supply chains has amplified inflation concerns, leading to a spike in 10-year Treasury yields.

🗣️ Comments from Fed officials add fuel to the fire

Furthermore, hawkish remarks from Fed Governor Michael Barr, stating that ‘additional rate hikes will be necessary if we are to reach the 2% inflation target’ and that ‘while the economy and labor market are robust, the pace of inflation decline is insufficient, increasing the risk of hindering goal achievement,’ accelerated the rise in interest rates.

🏠 3. Mortgage rates break through 7%! Growing disparity between sectors

Inflation and high interest rates are creating clear distortions in parts of the real economy.

Mortgage rates, which had fallen from just under 5% pre-pandemic to the 2% range at one point, have risen sharply since 2022, moving from the recent 6% range back above the psychological milestone of 7%.

Experts point out that ‘the 7% figure has a strong impact on consumer psychology, making them hesitate to purchase homes.’ Compounded by the surge in material and fuel costs, there are concerns about a stagnation in the housing market. Because the housing industry has a large ripple effect that circulates the economy through employment and material purchases, a cooling in the real estate sector acts as a drag on the entire economy.

Because the market is divided, with manufacturing and services performing well while real estate struggles, it is extremely important to identify strong sectors for investment.

🛢️ 4. Background of the crude oil price surge: Trump’s remarks and the Middle East situation

The surge in crude oil prices back to the $92 per barrel range also directly stimulated inflation concerns.

• Proposal to ban diesel fuel exports: Concerns over supply shortages have emerged after former President Trump expressed a positive stance on a proposal to ban diesel fuel exports. As the US had become a major supplier while supplies from the Middle East and Russia plummeted, the market has been on edge.

• Strained US-Iran relations: Iranian President Pezeshkian, attending the UN General Assembly, stated, ‘As long as US sanctions and maritime blockades continue, we will not allow free navigation in the Strait of Hormuz.’ He emphasized that they would not accept pressure through force and would not abandon their right to nuclear development for peaceful energy use.

If negotiations over the Middle East situation stall, it will create upward pressure on crude oil prices, continuing the tug-of-war of geopolitical risks that weigh on the stock market.

🤝 5. The truth behind the US-China summit: The intentions of both countries behind the approach

Another event of note is the US-China summit.

• Unusual welcome: An extremely unusual welcome ceremony will be held where President Trump greets Chinese President Xi Jinping at a transit point at the airport.

• US side: While eager to achieve results ahead of the midterm elections, they are rushing to break free from China’s dominance over rare earths.

• Chinese side: While prioritizing the blocking of a $14 billion arms supply plan to Taiwan (the most important red line), they are busy dealing with slowing domestic growth and rising youth unemployment.

Experts analyze that ‘the visit itself is a signal aimed at relationship management, and given that no major achievement goals were indicated in advance by either side, it is unlikely that any particular market-positive surprise will emerge.’

💡 6. [Summary] Market uncertainty and the valuation anomaly of ‘NVDA vs McDonald’s’

🔍 Short-term volatility and long-term fundamentals

In the short term, the market will continue to be swayed by macro factors such as high crude oil prices and rising interest rates. However, once this uncertainty is priced into the market, it will return to a market that emphasizes fundamentals (corporate earnings) once again.

⚠️ Don’t overlook the market bug (distortion)!

Here, I would like to introduce a very interesting comparison of valuations (stock price evaluations).

• NVIDIA (NVDA): Once bought at a P/E ratio of 60-70x, the current P/E has fallen to 19x due to stock price adjustments and earnings growth.

• McDonald’s (MCD): The current P/E ratio is 18x.

This means that NVIDIA, the AI leader expected to grow by nearly 70% in the next fiscal year, is being left at a valuation almost equivalent to that of the mature company McDonald’s. Although there are macro headwinds such as semiconductor regulations, this can be called a ‘market bug’ created by macro fear.

Not being swayed by short-term noise shaken by macro waves, and identifying such market distortions and excellent stocks with the potential for explosive future growth, is the key to obtaining large returns in the long term.

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