Powell Enters 'Blackout' After Failing to Appease Market... Careful Stock Selection Next Week

[Asia Economy Reporter Lee Seon-ae] Jerome Powell, Chairman of the Federal Reserve (Fed), failed to calm the market, and investment advice suggests that caution is needed when selecting sectors and stocks in the domestic stock market next week.

According to SK Securities on the 6th, despite Chairman Powell's efforts, U.S. Treasury yields have shown little sign of stabilizing. With the widespread distribution of COVID-19 vaccines raising expectations for the resumption of economic activities, concerns remain high that the Fed will raise its benchmark interest rate sooner than expected. Moreover, inflationary pressures have intensified as the $1.9 trillion U.S. stimulus package passed the House of Representatives. Although there are reports that the Fed is considering Operation Twist (selling short-term bonds and buying long-term bonds while maintaining the total amount) and Yield Curve Control (YCC) to address Treasury yield instability, the market remains uneasy. Attention is inevitably focused on the Fed and Chairman Powell's responses.

Han Dae-hoon, a researcher at SK Securities, emphasized, "As the Federal Open Market Committee (FOMC) meeting scheduled for March 16-17 approaches, the Fed officials have entered a blackout period during which they cannot make statements related to monetary policy. Therefore, the unstable market situation is expected to continue until the FOMC meeting."

The phase of increased volatility is expected to persist for the time being. Interest in the March FOMC will also grow. Given the anticipated volatility, selecting sectors and stocks has become truly important. And the basis for this is, of course, earnings.

Researcher Han stressed, "With the distribution of vaccines raising expectations for the resumption of economic activities and inflationary pressures increasing, attention is turning to cyclical stocks. Among cyclical stocks, it is important to make differentiated selections of sectors and stocks supported by solid earnings." He identified sectors with continuously upward earnings estimates among cyclical stocks, including display, transportation, steel, chemicals, IT home appliances, and semiconductors.