[Good Morning Stock Market] Dow Jones Falls, Nasdaq Rises... Turbulent US Stock Market

Stocks with Increasing Volatility Ahead of Futures and Options Expiration
Positive Outlook for Chinese Electric Vehicles... Need for Careful Selection

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] The U.S. stock market closed mixed. It is interpreted that related stocks showed volatility ahead of the futures and options expiration date on the 18th.

The New York stock market showed mixed results on the 17th (local time). On that day, the Dow Jones Industrial Average on the New York Stock Exchange closed at 33,823.45, down 0.62% (210.22 points) from the previous trading day. The S&P 500 index closed at 4,221.86, down 0.04% (1.84 points) from the previous session. The tech-heavy Nasdaq closed at 14,161.35, up 0.87% (121.67 points) from the previous trading day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Volatility is expanding for individual companies. In particular, the rise in some tech stocks with positive news has significantly increased. However, volatility in related stocks has also increased due to the sharp decline in the commodity futures market. This is presumed to be the result of supply and demand factors ahead of the futures and options expiration date on the 18th.

Currently, in addition to SPY options worth $240 billion (approximately 272.16 trillion KRW) and S&P 500 E-mini futures options worth $200 billion, there are also S&P 500 options worth $1.8 trillion expiring on the 18th. Although these amounts are large, considering the expanded market capitalization, they cannot be considered larger than in the past. Nevertheless, the supply and demand aspect is causing increased volatility as it can significantly affect the issue gap period after the U.S. Federal Open Market Committee (FOMC).

Commodities including soybeans have increased price volatility. The main reason for the decline was the hawkish Federal Reserve, which strengthened the dollar. Additionally, there are forecasts of heavy rain in the Midwest region, which has suffered severe drought damage. The U.S. Department of Agriculture also released a weekly export sales report showing soybean sales significantly below expectations.

However, despite the Fed's hawkish stance, the stock market remains stable, unlike the taper tantrum under former Fed Chairman Ben Bernanke in 2013 or the lift-off under former Fed Chair Janet Yellen in 2015. Investment banks expect gamma, which refers to the rate of change in sensitivity to underlying asset changes, to decrease significantly on this futures and options expiration date. Although index changes may be limited, individual companies are reacting strongly to each piece of news.

[Image source=EPA Yonhap News]

◆ Choi Won-seok, Researcher at Shinhan Financial Investment = Since last month, the protagonist of the Chinese stock market has been electric vehicles. While the Shanghai and Shenzhen stock markets rose 2.3% and 0.2% respectively, BYD, representing electric vehicles, surged 46%. In addition, CATL and Changxin New Materials, representing secondary batteries and materials, also hit new highs.

The market conditions themselves were favorable for growth stocks. After last month's inflation announcement, the People's Bank of China repeatedly expressed a cautious stance on changes in monetary policy direction. Investors were able to alleviate concerns about rising interest rates. At the same time, funds that exited sensitive stocks due to the Chinese government's raw material price controls flowed massively into growth stocks, which was also a key factor.

The decisive trigger lies in the business conditions. Electric vehicle sales exceeded 200,000 units monthly for three consecutive months for the first time ever. Furthermore, the market share of local brands expanded, and with battery companies' continuous capacity expansions and overseas advances, customers diversified. Coupled with material supply shortages, the entire value chain from finished vehicles to batteries and materials was positive.

However, due to the stock price rising sharply faster than earnings estimate upgrades, price burdens have also increased accordingly. Since the scars from the sharp drop in January still remain, it is not easy to respond readily. Also, as competition intensifies alongside solid growth potential, it is necessary to carefully distinguish the quality of companies.