[Good Morning Stock Market] US Rally Pressure Leads to Mixed Close... Will Domestic Stocks Also Take a Breather?

[Asia Economy Reporter Ji Yeon-jin] The U.S. New York stock market closed mixed on the 21st (local time) as expectations for the Biden administration's policies and corporate earnings clashed with concerns over continued stock price increases. On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average fell 12.37 points (0.04%) from the previous session to close at 31,176.01.

The Standard & Poor's (S&P) 500 index rose 1.22 points (0.03%) to 3,853.07, and the tech-heavy Nasdaq index closed up 73.67 points (0.55%) at 13,530.91. All three major indexes recorded intraday record highs, and the S&P 500 and Nasdaq continued their streak of closing record highs.

◆ Strength in Large Tech Stocks = The leaders of the U.S. stock market that day were large technology stocks. Apple jumped 3.7% following announcements of improved earnings expectations, while other large-cap stocks such as Amazon (1.34%), Alphabet (0.22%), Facebook (2.02%), and Microsoft (0.28%) also rose together.

That day, Morgan Stanley forecasted that Apple would report record earnings driven by strong product and portfolio performance, including 5G adoption of the iPhone, the spread of remote work, and the App Store. They expect double-digit growth across all segments and sustained demand intensity, projecting that this year's earnings will significantly exceed consensus. In particular, Apple's Taiwanese suppliers have accelerated year-over-year sales growth for three consecutive months, suggesting strong iPhone sales. This potential for Apple's earnings improvement is expected to spread optimism to other large tech stocks reporting earnings next week, continuing the upward trend from the previous day.

Solar energy company SolarEdge surged 6.73% following Morgan Stanley's report titled "The Sun Keeps Shining," and First Solar (5.68%) and SunPower (17.15%) also rose together.

However, Ford rose 6.17% on news that an electric version of the F-150 pickup truck might be manufactured, and Fastly jumped 6.75% as the Biden administration's low likelihood of imposing strict regulations was highlighted. American Airlines fell 2.10% due to disappointing earnings, while Delta Air Lines and Boeing also dropped 2.18% and 1.91%, respectively. Booking.com also declined 2.32%.

Seo Sang-young, a researcher at Kiwoom Securities, said, "Differentiation is progressing, with energy and financial sectors that had recently risen sharply, as well as airlines that reported poor earnings, falling. Considering that both the U.S. and global stock markets are responding with a focus on earnings, the Korean stock market is also expected to show this trend."

◆ Next Week's Fed FOMC and Earnings Season = The U.S. Federal Reserve (Fed) will hold the Federal Open Market Committee (FOMC) meeting on the 26th-27th to decide on the benchmark interest rate. However, Fed Chair Jerome Powell soothed market concerns by stating, "Now is not the time to consider tightening," and that rate hikes will be communicated with the market over sufficient time.

The U.S. stock market is expected to gain momentum from the tech companies' earnings reports released next week. Domestically, many leading companies, including LG Chem and Hyundai Motor, are scheduled to announce earnings. The net profit of KOSPI-listed companies for the fourth quarter of last year is expected to be 24.5 trillion won.

Domestic large-cap stocks have been driving the stock market rise recently amid a wave of positive factors. Individual investors have also concentrated on large-cap stocks. Although the strength of large-cap stocks is expected to continue this year, since the resumption of short selling?a major focus in the first half of this year?is likely to be concentrated on large-cap stocks, individual investors may turn their attention to small and mid-cap stocks. Han Dae-woon, a researcher at SK Securities, said, "Last year was a special situation due to COVID-19, so changes in estimates are important. The transportation, IT home appliances, steel, and automobile sectors have seen significant upward revisions compared to three months ago," adding, "These sectors have also had their first-quarter net profit estimates revised upward, making them sectors with high earnings appeal."