[Good Morning Stock Market] Stalled US Stimulus Package Agreement... Impact on Domestic Stock Market

[Image source=Yonhap News]

[Asia Economy Reporter Park Ji-hwan] The New York stock market closed lower. This is interpreted as the reason that the $2 trillion (approximately 2,300 trillion won) additional economic stimulus package, which the Trump administration and the Democratic Party in the U.S. are negotiating to recover from the economic shock caused by the novel coronavirus infection (COVID-19), has not escaped a deadlock.

On the 21st (local time), the Dow Jones Industrial Average closed at 28,210.82, down 97.97 points (0.35%) from the previous day. The S&P (Standard & Poor's) 500 index, which is focused on large-cap stocks, also fell 7.56 points (0.22%) to 3,435.56. The Nasdaq Composite Index, centered on technology stocks, closed at 11,484.69, down 31.80 points (0.28%). Domestic market experts forecast that, for the time being, the overall market trend will go through a process of digesting sell-offs, with stock-specific market conditions unfolding.

◆ Seo Sang-young, Kiwoom Securities Researcher = The domestic stock market is expected to continue a stock-specific market trend. The U.S. stock market showed a tendency to focus on negotiations as uncertainties related to the additional stimulus package persist. Some investment firms argued that even if a principled agreement is reached, it would not be easy to pass through Congress before the presidential election, which burdened the market. Another characteristic of the U.S. stock market was the large fluctuations in individual stocks due to corporate earnings announcements. This can be seen as a factor that restrained active responses due to uncertainties such as the presidential election, stimulus package, and ongoing COVID-19 spread. Considering this, the Korean stock market is expected to show a stock-specific market trend sensitive to individual stock issues such as earnings announcements while undergoing an overall process of digesting sell-offs. However, the number of new COVID-19 cases in the U.S. and Europe suggests that economic lockdown expansion is inevitable, which is a burden. Additionally, the 4% plunge in international oil prices due to demand slowdown from the surge in COVID-19 cases is also expected to have a negative impact. The Korean stock market is expected to focus on digesting sell-offs amid cautious observation rather than showing gains, paying attention to changes in financial market surrounding issues such as the U.S. presidential election and foreign investors' supply and demand.

◆ Park Seung-jin, Hana Financial Investment Researcher = Currently, the U.S. economy is showing signs of a policy vacuum. In particular, the contents of employment indicators, which can have cascading effects, are burdensome. The weekly unemployment claims have entered the 800,000 range, and the recovery trend is weakening, while the number of permanent layoffs has increased to 4.5 million, warning of potential medium- to long-term economic damage. Both the Democratic Party, which tends to lead the economy through active intervention, and the Republican Party, which pursues a small government and prefers stimulus methods such as deregulation and tax cuts over fiscal spending, are unlikely to change their policy lines easily ahead of the election. The additional stimulus package needs to be addressed from the perspective that it is a matter of timing. Recent opinion polls show that one of the top priorities in deciding the presidential candidate is the economic sector. This is also the biggest reason why both parties are not easily backing down in order to take the lead in economic policy ahead of the election.