[Good Morning Stock Market] Rising Concerns Over COVID-19 Resurgence in US and Europe... "Domestic Economic Improvement Trend Remains Valid"

US 7-Day Average COVID Cases Exceed 70,000... "Record High"
Q3 Domestic GDP Export Dependence Rises... "Caution Needed for Europe-Centered Resurgence"

[Asia Economy Reporter Minji Lee] As concerns over the novel coronavirus infection (COVID-19) in the United States have resurfaced, the Dow Jones Industrial Average closed at 27,463.19 on the 27th (local time), down 0.8% from the previous session. This decline stems from worries that major companies will report poor earnings due to the impact of COVID-19. On the other hand, the Nasdaq index rose 0.64% amid growing expectations for strong earnings from large tech stocks.

Meanwhile, the domestic GDP indicator for the third quarter showed positive growth, rebounding. Net exports recovered rapidly, contributing significantly. The market expects that the economy could improve in the fourth quarter with export-led recovery and easing of private consumption sluggishness; however, caution is advised as the spread of COVID-19 in Europe and the U.S. continues unabated.

[Image source=Yonhap News]

◆ Sangyoung Seo, Researcher at Kiwoom Securities = The U.S. stock market showed sectoral differentiation due to major companies’ earnings announcements and the resurgence of COVID-19. The Nasdaq index showed strength as buying interest flowed into large tech stocks, but the Dow Jones index declined as sectors affected by the COVID-19 resurgence showed weakness.

The 7-day average of daily new COVID-19 cases in the U.S. is analyzed to have surpassed a record high at 69,967 cases. This represents about a 20% increase compared to the previous week, with hospital admissions rising by at least 5% in 36 states. The possibility of hospital bed shortages during the winter season has been highlighted, negatively impacting investor sentiment.

In the vaccine sector, Eli Lilly’s announcement that its antibody treatment is ineffective for hospitalized patients and its decision to halt clinical trials caused its stock to fall about 7% compared to the previous day. Meanwhile, Pfizer’s stock slightly declined by 1.29%, but the company stated that vaccine-related clinical trials are nearly complete, causing ongoing confusion within the sector. On the same day, the EU stated that it would not secure sufficient vaccine quantities by 2022 and that the timeline for overcoming COVID-19 could be delayed, indicating that lockdown issues may gain additional attention.

In the stock market, large tech stocks and cyclical sectors such as travel, airlines, and automobiles showed mixed performances. The Nasdaq index expanded its gains on expectations of significant improvement in quarterly earnings of large tech companies, but the Dow Jones index closed lower due to anticipated weakness in the industrials sector. Concerns over earnings from Caterpillar (-3.24%) and Boeing (-3.48%) were prominent, contributing to the decline.

◆ Sungwoo Park, Researcher at DB Financial Investment = The domestic real GDP for the third quarter is estimated to have recorded 1.9% quarter-on-quarter growth, exceeding market expectations. This is because exports and facility investments rebounded by 15.6% and 6.7% respectively, despite private consumption contracting by 0.1% quarter-on-quarter. Although private consumption and construction investment were sluggish, net exports contributed strongly with 3.7 percentage points.

The third-quarter growth data reflects the high external dependence of the domestic economy. Despite the contraction in private consumption due to the domestic COVID-19 spread since mid-August, the significant growth rebound was possible due to strong export performance driven by the global rebound in consumption demand in the third quarter.

However, the domestic economy in the fourth quarter is likely to show a trend opposite to that of the third quarter in terms of domestic and external demand. External demand, which drove the third-quarter domestic growth surprise, may act as a downside risk factor in the fourth quarter. Although social distancing measures have been eased domestically since October, COVID-19 resurgence centered in Europe has intensified, leading to mobility restrictions. The domestic economy in the fourth quarter is expected to show a rebound in private consumption and export recovery.

Nonetheless, the recovery trend is expected to continue. The slowdown in domestic COVID-19 spread is anticipated to restore demand in the service sector, and the effect of the second disaster relief fund will be fully reflected, leading to a rebound in private consumption. Despite the spread of COVID-19 in major countries, the possibility of a full-scale lockdown like in the second quarter is considered low. The growth rate for the fourth quarter is expected to record 0.8% quarter-on-quarter, and the annual outlook for next year is estimated at 2.7%.