[Good Morning Stock Market] Growing Anxiety Amid US Market Correction... "It Will Inevitably Rise"

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[Asia Economy Reporter Kum Boryeong] As the correction in the U.S. stock market has lasted longer than expected, anxiety is spreading across global stock markets and the broader financial markets. In particular, uncertainty stemming from the U.S. presidential election is further impacting financial market volatility. However, there is also analysis suggesting that the U.S. stock market is inevitably bound to rise again.

◆ Jo Byunghyun, Researcher at Yuanta Securities = Controversy has arisen as U.S. President Donald Trump expressed his intention on the 18th to promptly proceed with the appointment of a successor to the late Justice Ginsburg. The Democratic Party immediately opposed this, and some members within the Republican Party have also voiced dissent. The U.S. Supreme Court consists of nine justices, and it is currently deliberating on the constitutionality of the Affordable Care Act (Obamacare). The late Justice Ginsburg was known as a representative progressive figure, and currently, conservatives hold a 5-3 majority.

From Trump's perspective, it appears he intends to use the nomination of a conservative figure as a card to gain an advantage in the election. For the Democrats, since the revival of Obamacare is one of their core pledges, they cannot concede on the appointment of the justice.

The key issue is not so much who will become the justice in hindsight, but rather that this matter could intensify the confrontation between the two parties. As mentioned, Trump and the Republicans are using this as a card to create a favorable election environment, and the Democrats cannot back down because it is directly related to a core policy. This is a contentious issue that neither side can easily compromise on. Coincidentally, the deadline for the 2021 budget bill is approaching, and monetary policy and macro momentum are slowing down. The only positive factor the stock market can currently expect, the economic stimulus package, is also facing difficulties. Under these circumstances, the emergence of an additional political standoff that is hard to back down from is judged to be a factor that could affect both political uncertainty and financial market volatility.

◆ Kang Jaehyun, Researcher at Hyundai Motor Securities = September was a tough month for global stock markets. The correction in the U.S. stock market has lasted longer and deeper than expected. Since the peak on the 2nd, the S&P 500 index has fallen 8.4%, and the Nasdaq index has dropped 10.6%. This has recently expanded anxiety across global stock markets and the broader financial markets.

There is much debate about the background of this correction. To summarize it in one sentence, the burden of high stock valuations has been increasing, and investors' confidence in whether the environment that can tolerate this will continue has recently weakened. There are more variables. Interest rates have stopped falling, concerns about the possibility of expanded Federal Reserve policies have increased, and agreement on additional fiscal stimulus is delayed. To make matters worse, COVID-19 shows signs of re-spreading.

We examined what patterns these variables might show in possible scenarios and aimed to conclude whether the stock market can overcome the correction and resume its rally. First, the plausible scenarios at this time are 'if COVID-19 does not re-spread' and 'if COVID-19 re-spreads.' To conclude, regardless of the case, the stock market is inevitably bound to rise again. In other words, the current correction can be seen as a good buying opportunity.

Assuming the case where COVID-19 does not re-spread, in an environment where the COVID-19 situation improves, the implementation of additional stimulus by the U.S. government is not expected to significantly hinder the overall trend of economic recovery. Of course, if additional stimulus is implemented, the speed of economic improvement will accelerate, but despite the still high unemployment rate, the U.S. consumer economy has shown a favorable performance, which is judged to be mainly due to the zero interest rate policy. Fortunately, the housing market remained strong in September, and consumer sentiment also improved accordingly. Therefore, in this case, whether additional stimulus is implemented is expected to be an issue that only slightly increases volatility.