[Good Morning Stock Market] Nasdaq Soars on Interest Rate Drop... Expecting Korean Rebound with 'Strong Exports'

[Asia Economy Reporter Ji Yeon-jin] The U.S. stock market closed higher on the 1st (local time) as Treasury yields fell. This was thanks to increased expectations following the passage of additional stimulus measures by the Biden administration through the U.S. House of Representatives. The rebound buying contributed to the bullish market, with theme stocks such as electric vehicles and solar power, which had recently led the Nasdaq's decline, showing strength.

Industrial, utility, and energy sectors led the gains, pushing the Nasdaq index up by 3.01%, while the S&P 500 index also rose 2.38% to close the session. The Dow Jones Industrial Average increased by 1.95%.

Apple (+5.39%) surged on news of the reopening of Apple Stores in the U.S. and increased orders in the iPhone 14 supply chain. Related component sectors such as Skyworks (+4.86%), Qorvo (+4.34%), and Broadcom (+4.19%) also rose together. Tesla (+6.36%) jumped after investment bank Wedbush projected that the global value of the electric vehicle industry would grow from $250 billion last year to $5 trillion by 2030. Chinese electric vehicle stocks like Nio (+8.69%), as well as battery-related sectors including QuantumScape (+5.02%) and the Global Lithium Battery ETF (+4.62%), also surged. Financial stocks such as JPMorgan (+2.26%), Bank of America (+3.11%), and Citigroup (+5.56%) showed strength, citing persistent inflationary pressures.

◆ Sangyoung Seo, Kiwoom Securities Analyst = Despite favorable economic data, U.S. Treasury yields started lower last week, which had been a key topic in the stock market. The February ISM Manufacturing Index was announced at 60.8, surpassing the previous month's figure (58.7) and expectations (58.9). The Prices Paid Index, which indicates pricing power, reached 86.0, the highest level since July 2008, showing increasing inflationary pressure. However, despite these factors that would typically push yields higher, many believed the previous week's rise was excessive, leading to a decline in yields and a stable market that supported stock gains.

The $1.9 trillion additional stimulus package passed the House and is now under discussion in the Senate. The announcement that the Senate would discuss the stimulus excluding the minimum wage increase, which some Democrats opposed, raised expectations for congressional approval and helped improve investor sentiment.

The Asian markets also surged. The Chinese government announced it would maintain the transaction tax (stamp duty) in the mainland market, which was interpreted as a response to the stabilization of U.S. Treasury yields. The stability in U.S. yields is expected to have a positive impact on the Korean stock market as well. In particular, February Korean exports surged 9.5% year-on-year, and when adjusted for working days, increased by a remarkable 26.4%, which is expected to positively influence investor sentiment. The improvement in the New Orders Index, one of the leading indicators of Korean exports in the ISM Manufacturing Index, also suggests that export growth will continue.

However, concerns remain as international oil prices are falling due to selling pressure following last week's increased volatility in commodity markets. Although U.S. Treasury yields have stabilized, inflationary pressures remain high, and the dollar continues to strengthen. Considering these factors, the Korean stock market is expected to start with about a 3% rise, factoring in the previous day's holiday, followed by a process of digesting selling pressure on individual stocks.

◆ Daehun Han, SK Securities Analyst = The Biden administration's $1.9 trillion economic stimulus package passed the House and moved to the Senate. The Senate will discuss the package over the next two weeks before proceeding to a vote, which could take place as early as this week. For the stimulus to pass in the Senate, at least 60 senators must approve it; however, the Democrats plan to use budget reconciliation to pass the package with a simple majority. The likelihood of the stimulus passing is high. This will significantly influence the direction of the 10-year U.S. Treasury yield, which once exceeded 1.6%.

Attention is also focused on Federal Reserve Chair Jerome Powell's speech. Powell is scheduled to speak at a conference hosted by the Wall Street Journal on the 4th (local time). The March Federal Open Market Committee (FOMC) meeting is scheduled for the 16th-17th of this month, and starting from the 6th, Fed officials enter a so-called 'blackout' period during which they are prohibited from commenting on monetary policy. This means Powell's upcoming speech will be his last public remarks before the March FOMC. Although he hinted at maintaining accommodative monetary policy during his Senate semiannual testimony, the market remains uneasy. His stance in this speech could significantly impact interest rates, making it very important.

◆ Namjoong Moon, Daishin Securities Strategist = The recent rise in yields is driven by expectations of inflation. The combination of autonomous economic recovery due to COVID-19 vaccine distribution, rising oil prices, and the monetary and fiscal policy mix of the Federal Reserve and the Biden administration has caused expected inflation to rise faster than anticipated. However, it takes time for expected inflation to translate into actual inflation. The January unemployment rate (6.3%) has not yet returned to pre-COVID-19 levels (3.5% in February 2020), and uncertainties related to the pandemic may increase the savings rate (13.7%). This is why the current rise in yields, which is causing market anxiety, is unlikely to last long.

The 10-year U.S. Treasury yield is at 1.38%, with room to rise to around 1.5% in the next one to two weeks. The 1.5% level corresponds to the yield level before the COVID-19 outbreak in January-February last year. Since the rise in yields is being discussed, from a supply-demand perspective rather than fundamentals, the increase in expected inflation reduces real yields, decreasing the incentive to hold bonds, which may cause temporary selling pressure. Setting 1.5% as the critical threshold for market anxiety due to rising 10-year Treasury yields, reaching this level should be used as an opportunity to actively increase equity allocations.

The reason for rising yields this year is economic recovery rather than a shift to monetary tightening. The additional stimulus package being pushed by the Biden administration is likely to pass before mid-March, so market interest rates will continue to rise despite the Fed holding its benchmark rate steady. Rising yields during an economic recovery phase do not burden the stock market. Major countries still need to continue expansionary fiscal policies to overcome the COVID-19 crisis. When growth rates exceed interest rates, it alleviates the principal and interest burden of government debt, meaning expansionary fiscal policy is sustainable and policy-driven markets remain valid. Since the recent market anxiety triggered by rising yields saw growth stocks fall more than value stocks, the current phase supports a strategy of increasing the weighting of growth stocks.