Near All-Time Highs... Is the NYSE Rally Stalled by Fed and Bond Yields?

On Friday, January 16 (local time), the New York stock market closed out the week slightly lower. The S&P 500 fell 0.1% to 6,940.01, the Dow Jones Industrial Average declined 0.2% to 49,359.33, and the Nasdaq dropped 0.1%. Over the week, each of the three major indexes saw corrections of less than 1%, while the small- and mid-cap–focused Russell 2000 rose 0.1%, suggesting that risk appetite has not completely evaporated.

Interest rates once again emerged as the market’s key driver. President Trump signaled that he may not appoint Kevin Hassett—previously mentioned as a potential successor to Fed Chair Jerome Powell—introducing uncertainty about the future course of monetary policy and sending U.S. Treasury yields to four-month highs. That uncertainty over how aggressively the Fed might cut rates weighed on stock prices.

Comments from within the Fed added to caution around the interest-rate outlook. In his address, Federal Reserve Vice Chair Philip Jefferson said the recent rate cuts have brought the funds rate close to neutral, but any further adjustments would depend on incoming inflation and employment data, reaffirming a “data-dependent” stance. Markets also looked to Vice Chair Michelle Bowman’s speech on economic and monetary policy later that day for additional clues on the Fed’s early-year signals.

Corporate earnings widened the gap between individual stocks. Large regional bank PNC jumped about 3% after its fourth-quarter results topped forecasts, while Regions Financial underperformed due to disappointing results. Some big-tech and semiconductor names helped limit the decline in the indexes, supported by ongoing AI investment momentum and Micron’s disclosure of substantial insider share purchases by its management team.

The global backdrop remains delicate. After Taiwan’s TSMC surprised with stronger-than-expected results early in the week and reports of a U.S.-Taiwan trade agreement, semiconductor and AI-related stocks rallied worldwide. At the same time, concerns about rising oil and power prices have produced mixed performance within the U.S. utility sector. With U.S. equities hovering near record highs, markets are likely to continue seeking direction among three main pillars: interest rates, Fed appointments, and corporate earnings.