[Good Morning Stock Market] Strength on Economic Normalization Expectations... Risk Asset Preference Sentiment Resurges

US Stock Markets Rise in Unison... Economic Upswing Anticipated
Passage of Additional Stimulus Bill, Bipartisan Agreement Possible
Positive Impact Expected on Export-Dependent Domestic Stock Market

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market closed higher amid improved employment data and expectations following the passage of additional stimulus measures. The rising international oil prices and renewed preference for risk assets also contributed to the positive sentiment. Analysts suggest that the domestic stock market, which is highly dependent on exports, will also benefit positively from the normalization of the U.S. economy.

On the 4th (local time) at the New York Stock Exchange, the Dow Jones Industrial Average closed up 1.08% at 31,055.86. The S&P 500 rose 1.09% to 3,871.74, and the Nasdaq Composite increased 1.23% to 13,777.74. Both the S&P 500 and Nasdaq recorded closing highs.

◆Sangyoung Seo, Kiwoom Securities Researcher= The U.S. stock market started higher as improved employment data and expectations for swift progress following the House of Representatives' passage of additional stimulus measures fueled optimism. Federal Reserve (FED) officials' projections that the U.S. GDP growth rate will exceed 5% this year also contributed to the rise. Overall, expectations for economic normalization and additional stimulus had a positive impact.

After the market close, the U.S. House passed an additional $1.9 trillion stimulus package. Senator Bernie Sanders, chairman of the Senate Budget Committee, invoked reconciliation rules allowing the Democrats to pass the stimulus bill without Republican support. Treasury Secretary Janet Yellen and President Joe Biden met with Republican lawmakers and stated they are ready to cooperate. They also expressed a desire for bipartisan agreement on the stimulus package. Currently, the Democrats aim to pass it by the 14th of next month. If passed without Republican support, political uncertainty may increase, potentially slowing the Biden administration's policy implementation due to Republican opposition. This moderate approach positively influenced the market.

Meanwhile, expectations for improved indicators and additional stimulus have heightened, leading to a rise in U.S. Treasury yields. The Congressional Budget Office's mid-year economic normalization forecast, Pfizer's plan to supply 200 million vaccine doses by May, and stimulus expectations contributed to the upward trend. Due to the low base effect from last year's sharp drop in international oil prices, inflationary pressures may increase, suggesting the rise will continue for some time. Market participants are concerned about increased volatility in financial markets such as stocks due to rising yields, but Federal Reserve Chair Jerome Powell has mentioned tolerating some inflation persistence, limiting the impact of rising Treasury yields. Particularly, market participants focus more on the pace of yield increases rather than the absolute level, so the moderate movement on this day did not significantly affect the stock market.

A similar effect is expected in the domestic stock market. The semiconductor sector, which declined the previous day in the U.S. market, showed strong rebound buying, and improvements in employment data and rising international oil prices are expected to boost investor sentiment. Although the U.S. dollar showed strength, considering that the strength was due to expectations for U.S. economic normalization rather than increased safe-haven demand, it is likely to have a positive effect on the export-dependent domestic stock market. Additionally, as retail distributors raised their earnings and guidance, concerns about a slowdown in U.S. consumption may ease, which is also favorable. The domestic stock market is expected to start higher, with rebound buying focused on large export stocks that experienced significant declines the previous day.

◆Ilhyuk Kim, KB Securities Researcher= The U.S. is expected to follow the U.K. in rapid economic recovery as vaccinations progress, but concerns about monetary tightening remain low. The U.S. has the highest number of people vaccinated at least once worldwide, and the number of people vaccinated at least once per 100 population ranks fourth after Israel, the United Arab Emirates (UAE), and the U.K. Considering the vaccination pace, the U.S. is also expected to achieve herd immunity quite rapidly like the U.K. In other words, the economy will recover quickly like the U.K., and the need for additional monetary easing will decrease.

However, at least for now, concerns about the Fed's monetary policy normalization are not high. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, who was the first within the Fed to mention the possibility of tapering (asset purchase reduction) within the year, has retracted his previous statement. He emphasized that the tapering comment was a mistake and that the Fed's long-term monetary policy framework intends to keep the economy sufficiently heated. Even if economic activity recovers rapidly due to vaccinations, if the Fed does not rush monetary policy normalization, expectations for inflation and real growth will increase.

Rising interest rates reflecting higher nominal growth expectations are positive for stocks. Conversely, if the Fed's monetary policy shifts to tightening or the Treasury issues large-scale bonds, causing yields to rise, it would be negative for stocks. However, the Treasury has stated there is no urgent need to issue large-scale bonds.

With moderate Republicans showing willingness to negotiate, talks on additional support are progressing smoothly. Moderate Republican Senator Mitt Romney (Utah) proposed paying $3,000 per child aged 6-17 and $4,200 per child under 6. This is an alternative approach to President Biden's child tax credit for low-income families. By proposing an alternative, bipartisan agreement possibilities have increased. While additional stimulus remains important, market attention is expected to gradually shift from fiscal stimulus to the real economy and vaccines.