[Good Morning Stock Market] US Stocks Rally on Yellen's Large-Scale Stimulus and Corporate Tax Remarks

Possibility of Continued Large-Scale Stimulus and Delay in Corporate Tax Increase Highlighted
Liquidity May Shift to US Stock Market... Continued Pressure on China Remains a Burden

Janet Yellen, former Chair of the Federal Reserve (Fed), who has been nominated as the first Secretary of the Treasury for the next administration led by President-elect Joe Biden, is speaking at the announcement event for the Biden administration's economic team held on the 1st (local time) at the Queen Theater in Wilmington, Delaware.
[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Janet Yellen, the nominee for U.S. Treasury Secretary, stated during her confirmation hearing that she would continue large-scale additional stimulus measures and took a somewhat moderate stance on raising corporate taxes, leading the U.S. stock market to rise, particularly in technology stocks. While this could improve investor sentiment in the domestic market, some analysts suggest the effect may be limited as liquidity might flow to the U.S.

On the 19th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 30,930.52, up 0.38% from the previous trading day. The S&P 500 index rose 0.81% to 3,798.91, and the tech-heavy Nasdaq index ended trading at 13,198.18, up 1.53%.

◆Sangyoung Seo, Kiwoom Securities Researcher= The U.S. stock market started higher as companies reported solid earnings. Additionally, the market interpreted Yellen’s comments during the confirmation hearing positively, contributing to the upward trend.

Yellen argued that overcoming the COVID-19 pandemic should come before addressing the fiscal deficit and mentioned the continuation of large-scale stimulus measures. She also stated efforts would be made to support small and medium-sized enterprises. This emphasized that the economy must return to pre-COVID-19 conditions, such as employment stability, rather than focusing on inflation concerns that could be triggered by large-scale stimulus.

Furthermore, she asserted that the U.S. would not artificially pursue a weaker dollar for competitive reasons and would not tolerate currency manipulation by other countries. Although this raised concerns about potentially tough content in the currency report, the impact was limited, likely because this information was already known.

Particularly noteworthy to the market were her remarks on raising corporate taxes, which contributed to the strength of major tech stocks in the latter part of the session. Yellen stated that some of the corporate tax cuts from 2017 should be repealed. She referred to raising the corporate tax rate to 28%, higher than the 21% proposed by President-elect Biden, but lower than the pre-2017 rate of 35%. However, she emphasized that any increase should be coordinated with OECD countries and that maintaining the competitiveness of U.S. companies is a priority, highlighting the possibility of a delayed corporate tax hike. She also mentioned that policies for higher corporate taxes would be pursued after overcoming COVID-19, which had a favorable effect on the stock market.

However, regarding policy toward China, she indicated that as a strategic competitor, the U.S. is prepared to use all means against China’s illegal and unfair practices, suggesting continued pressure on China.

The Korean stock market is also likely to see improved investor sentiment supported by the strength of U.S. tech stocks. However, the positive expectations for Yellen have already been partially priced in, so the impact is expected to be limited. Considering the ongoing U.S. pressure on China and the potential delay in the U.S. corporate tax hike, the possibility of liquidity inflow into the U.S. is a concern. Additionally, Germany extended its economic lockdown until the 15th of next month, and the International Energy Agency (IEA) lowered its oil demand forecast, which may also weigh on the pace of economic recovery. Accordingly, the domestic market is expected to start flat and continue with a stock-specific market during the process of absorbing selling pressure.