[Good Morning Stock Market] Fear Spreads Amid Concerns of COVID-19 + Flu 'Twin-demic'

Difficulties in Fiscal Policy Talks... Delay in Supplementary Budget Unavoidable
"Market Adjustment Period Will Be Even Longer"

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As concerns grow over a 'twindemic' with the simultaneous spread of COVID-19 and the flu, the US stock market is wavering amid difficulties in fiscal policy negotiations. The delay in the supplementary budget due to the Supreme Court justice appointment issue is expected to cause the market to continue its sluggish trend for the time being.

◆ Yeonju Jo, NH Investment & Securities Researcher=On the 23rd (local time), the three major US indices?S&P 500, Dow Jones, and Nasdaq?closed down by 2.4%, 1.9%, and 3%, respectively. Amid rising twindemic concerns from COVID-19 and the flu, market anxiety increased as the US government failed to reach an agreement on fiscal policy. The disaster relief fund, which can be used under President Donald Trump's executive order, amounts to $44 billion and has already been fully allocated to state governments to continue unemployment benefits of $300 per week through the unemployment assistance program. Nine states have already exhausted their funds as of the 12th, and by the end of this month, 35 states are expected to become insolvent.

Additionally, during the Medicare enrollment period from next month’s 15th to December 7th, demand for additional enrollment due to COVID-19 is expected to rise. The need for government funds, such as homeowner support due to the eviction moratorium for tenants, is also expected to expand.

The much-anticipated Tesla 'Battery Day' event also fell short of expectations. Details on the '1 million-mile battery' plan and cost reduction goals were insufficient and failed to meet market expectations, causing the stock price to drop more than 10%. Tesla announced plans to produce electric vehicles priced around $25,000 by 2023, but other companies like Volkswagen are expected to release similarly priced vehicles around that time.

In the US stock market, opinions are divided between value and growth stocks, and negative news about large tech companies is expected to elicit more sensitive reactions. The failure to agree on a stimulus package is judged to have expanded overall risk asset preference. Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin appeared before the House Financial Services Committee to emphasize the need for fiscal policy and are expected to appear before the Senate committee on the 24th (US time) to continue addressing economic uncertainties. The weekly initial jobless claims will also be announced that day, and if the figures fall short of market expectations, the urgency of fiscal policy may be further emphasized.

◆ Sunggeun Kim, Korea Investment & Securities Researcher=The US House of Representatives passed a temporary budget on the 23rd. This extends the government budget, which was set to expire on October 1st, until December 11th to prevent a government shutdown. The problem lies in the supplementary budget negotiations, which have shown no meaningful progress for several weeks. Moreover, the likelihood of an agreement is decreasing further. This is because the attention of both parties has completely shifted to the appointment of a successor following the death of Supreme Court Justice Ruth Bader Ginsburg. President Trump and the Republicans announced immediately after the news of her passing that they would proceed with selecting a successor, and President Trump is expected to announce a nominee within this week. The Democrats strongly oppose this, pushing the supplementary budget to the back burner. Considering the cases of Supreme Court justices appointed during Trump's term, the passage of the supplementary budget is realistically expected only next year. Accordingly, the market is likely to continue its sluggish trend for the time being.

Because of the immense importance of this appointment, the supplementary budget is unlikely to receive attention for the time being. The problem is that for the market, passing the supplementary budget is more important than appointing a conservative Supreme Court justice. The recent sustained downward pressure is due to rising real interest rates caused by falling expected inflation, and passing the supplementary budget could raise expected inflation. Since early September, as expectations for the supplementary budget's passage have diminished, expected inflation has also faced downward pressure. As the expected passage of the supplementary budget is delayed, the adjustment period is also expected to lengthen.