[Good Morning Stock Market] Kospi Breaks Previous High, Focus on Cyclical Stocks

[Asia Economy Reporter Oh Ju-yeon] On the 4th (local time), the New York Stock Exchange closed higher in response to expectations of easing of the novel coronavirus infection (COVID-19) and positive remarks on the US stimulus package negotiations. The Dow Jones Industrial Average rose 0.62% from the previous trading day to 26,828.47, the S&P 500 index increased 0.36% to 3,306.51, and the Nasdaq index closed up 0.35% at 10,941.17. In particular, while large technology stocks and pharmaceutical-biotech sectors, which had increased profit-taking demand, declined, cyclical stocks showed strength, leading to analysis that buying momentum focused on cyclical stocks will flow into the domestic stock market as well.

On the 4th, the KOSPI index started with an increase of nearly 1%. Dealers are busy working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Mun Ho-nam munonam@

◆ Seojung-hoon, Samsung Securities Researcher = The US Congress is continuing negotiations on an additional stimulus package. Although no conclusion has been reached yet, the atmosphere among the negotiation representatives is evaluated to have made more progress compared to the previous day. Chuck Schumer, the Democratic Senate Majority Leader, mentioned that the additional stimulus package negotiations are moving in a positive direction. Some Republican lawmakers stated that the negotiations might take more time, but the impact on the stock market was limited. The US Congress is scheduled to enter summer recess starting from the 7th.

Technology stocks, which had driven the stock market rise based on positive earnings so far, showed mixed trends. Microsoft, Facebook, and Alphabet, which are positioned among the top market caps, declined around 1%. Apple and Amazon rose but the gains were limited to less than 1%. The gaming sector overall showed an upward trend influenced by Take-Two Interactive, a game company, presenting a positive earnings outlook.

Looking at other sectors, the energy sector recorded the highest returns, rising 2.45%. Following that, consumer staples, real estate, and materials sectors showed relative strength. On the other hand, healthcare and financial sectors closed lower.

The domestic stock market is going through the Q2 earnings season. Since the index level is close to the yearly high, it seems necessary to respond by narrowing down to sectors with clear fundamental improvements.

◆ Seo Sang-young, Kiwoom Securities Researcher = In the US stock market, large technology stocks and pharmaceutical-biotech sectors declined due to increased profit-taking demand, while cyclical stocks showed strength as news came that the number of daily airport passengers approached 800,000, the highest since the COVID-19 outbreak. Although this is still lower compared to the approximately 2.7 million daily passengers last year, it is estimated that attention was drawn to the significant increase compared to about 200,000 cases in March, when the COVID-19 crisis was at its peak. This raises the likelihood that buying momentum focused on cyclical stocks will flow into the Korean stock market as well.

Meanwhile, recent survey results indicating that US employment has contracted again due to the resurgence of COVID-19 and news that consumer spending based on card usage has stagnated are expected to be burdensome. This is because lowered expectations for economic recovery could negatively affect foreign investor demand. Considering these changing factors, it is expected that in the Korean stock market, profit-taking sales may emerge in the stock groups that led the rise, while sector differentiation will proceed as the US employment data results and US stimulus package are closely watched later in the week.