[Good Morning Stock Market] Returning to the Pre-COVID-19 Era

Observations Suggest Second Half Economic Momentum Will Strengthen Compared to First Half
Analysis Also Advises Caution Over Optimism Considering Gold Prices

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As the United States begins to return to the pre-COVID-19 era, the stock market has also shown an upward trend. There are forecasts that economic momentum will strengthen in the second half of the year compared to the first half. However, considering the recent soaring gold prices, some interpretations suggest that doubts about the economic recovery in the second half still remain.

The New York stock market closed higher on the 26th (local time). On the New York Stock Exchange that day, the Dow Jones Industrial Average closed at 34,323.05, up 0.03% (10.59 points) from the previous trading day. The S&P 500 and the tech-heavy Nasdaq indices closed at 4,195.99 and 13,738.00, up 0.19% (7.86 points) and 0.59% (80.82 points), respectively, compared to the previous trading day.

◆ Seo Sang-young, researcher at Mirae Asset Securities = According to mobility trends provided by Apple, the U.S. appears to be returning to the pre-COVID-19 period. Both driving and walking have exceeded about 40% compared to before the pandemic. The full-scale vaccination rollout is the reason for this recovery.

Countries showing this trend include not only the U.S. but also European countries such as the U.K. and Germany. This raises expectations for economic normalization, which is why economically sensitive stocks and sectors related to economic normalization?such as travel, leisure, energy, and financial stocks?have been strong in the recent stock market. Early in the week, news emerged that about 70% of the momentum exchange-traded fund (ETF) holdings would be shifted from growth stocks to economically sensitive stocks, which was also positive from a supply-demand perspective.

Speculative trading-related stocks are surging again. Meme stocks commonly known as GameStop and AMC Entertainment rose 15.82% and 19.20%, respectively, compared to the previous trading day. In the past, whenever volatility increased in the cryptocurrency market, including Bitcoin, meme stocks also tended to show increased fluctuations. Many evaluations suggest that speculative trading funds have flowed into related stocks due to the recent sharp decline in the cryptocurrency market. This indicates that while most investors have taken a wait-and-see stance amid a lack of clear momentum in the stock market and increased volatility in other financial markets including commodities, investors focusing on speculative trading are presumed to be purchasing meme stocks.

◆ Lee Seung-hoon, researcher at Meritz Securities = I maintain the view that global economic momentum will strengthen in the second half of this year compared to the first half. Developed countries with accelerated vaccination speeds, led by the U.S., will sequentially enter herd immunity, making the recovery of deferred consumption visible. Manufacturing orders, centered on IT and industrial goods, will continue to increase as customers secure appropriate inventory, extending the recovery of these sectors. The fact that most major countries’ policies this year focus on supporting growth is also a positive factor for recovery.

Meanwhile, it is not necessary to view all countries currently lagging in vaccination rates pessimistically. Hong Kong, Mexico, South Korea, Japan, and others, where vaccine orders exceed 100% of the population, are expected to see rapid increases in vaccination rates once vaccines are delivered, although it may take some time. When herd immunity is approached, consumption activities that were not possible due to COVID-19 will resume. Accordingly, outdoor and face-to-face activities such as travel, entertainment, lodging, daycare, dental care, and casinos, where spending has significantly decreased compared to pre-COVID-19 levels, are expected to revive.

◆ Jo Byung-hyun, researcher at Yuanta Securities = Gold prices have recently been on the rise. Generally, gold shows strength when there is a shock to the economy or financial markets, increasing preference for safe-haven assets, or when a low-interest-rate environment or expected interest rate declines occur. In fact, gold prices are closely correlated with the direction of interest rates.

The recent major concern in the market is the timing of the U.S. Federal Reserve’s tapering of asset purchases. There is uncertainty about when the previously expansionary monetary policy will shift to tightening. Additionally, although not confirmed, there are opinions that inflation in the second half of the year may remain at a higher level than expected. In such a situation, the direction of interest rates is unlikely to be favorable for gold prices.

Ultimately, the sharp rise in gold prices appears to be influenced by doubts about the sustainability of the economic recovery. Recently, U.S. sentiment indicators have begun to show signs of slowing down. This reflects skepticism about whether favorable economic conditions will continue in the second half. Given the lingering concerns about the second half, gold prices should be viewed with caution.