[Good Morning Stock Market] Is the First Global Market Rebound Over? "Volatility to Increase Further in Q2"

US New York Stock Market Closes Down Over 4%
W-Shaped Rebound Expected Amid Recession Concerns

[Asia Economy Reporter Minji Lee] The U.S. New York stock market closed lower again. On the 1st (local time), the Dow Jones Industrial Average fell 973.65 points (4.44%) to close at 20,943.51. The S&P 500 and Nasdaq indices also closed down by over 4%. Despite the Federal Reserve's large-scale economic stimulus measures, investors are focusing on the spread of the novel coronavirus infection (COVID-19). Currently, the number of confirmed COVID-19 cases in the U.S. has surpassed 200,000. Experts predict that if concerns about an economic recession due to the spread of COVID-19 expand again, major U.S. indices are likely to show a W-shaped rebound pattern rather than a V-shaped recovery.

[Image source=Yonhap News]

◆ Seungmin Yoo, Head of Samsung Securities Research Center = The first rebound in the global stock market will soon end. The S&P 500 index surged 17.4% from its low after plunging 33.9% from its peak. The KOSPI also rebounded more than 20% after a 35.6% correction. However, the global stock market is expected to show high volatility in the second quarter. This is because the economic shock is expected to materialize in various countries despite strong stimulus measures. In the stock market, if corporate earnings revisions downward become widespread, a sustained recovery will be difficult.

The U.S. and Europe are expected to see the COVID-19 spread subside in April due to strong mobility restrictions. However, looking at the cases of China and Korea, uncertainty is expected to persist for a long time even after the peak of confirmed cases has passed. Accordingly, if lockdown policies and social distancing measures between countries are suspended for the time being and economic activities are delayed in normalizing, the shock to the global economy in the second quarter is expected to be greater.

Long-term investment is recommended for investors. Whether in the U.S. or Japanese markets, extending the holding period to more than one year increases the probability of investment success. As the global stock market is expected to enter a period of high volatility for the time being, the winning strategy in the investment battle is diversification by country and long-term investment.

◆ Jungwoo Park, Researcher at Korea Investment & Securities = The real economic shock from COVID-19 in Korea is just beginning. Industrial production in February decreased by 3.5% compared to the previous month, revealing the expected impact of COVID-19. The sectors most affected by COVID-19 and showing poor performance were automobiles (-4.9%), domestic transportation and warehousing (-9.1%), accommodation and food services (-18.1%), and wholesale and retail trade (-3.6%).

In particular, the manufacturing inventory-to-shipment ratio remains high at 118.0, indicating that production activities are expected to deteriorate further. Manufacturing production in early the second quarter, when export orders begin to decline significantly, is likely to decrease more than in the first quarter. The consumption sector also saw a significant decrease compared to the previous month. Duty-free shops suffered a severe blow, but online shopping increased instead. Consumption orders are expected to decline sharply again in March. Due to sluggish durable goods consumption such as automobile sales and domestic demand, private consumption is estimated to have decreased by about 10% compared to the previous quarter.

The first-quarter growth rate is estimated to have decreased by 3.3% quarter-on-quarter. This decline is similar in magnitude to that recorded in the fourth quarter of 2008 following the Lehman Brothers bankruptcy. This growth shock is expected to have repercussions through the second quarter. However, if the government’s active economic stimulus policies and the peak of virus spread in the second quarter lead to a slowdown in the spread, domestic growth is expected to rebound again during the second quarter.