[Good Morning Stock Market] Slightly Firm Trend... Challenging Record Highs Once Again

On the 23rd, buoyed by the positive momentum in the US stock market, the KOSPI index showed an early rise. Dealers are working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Lee Seon-ae] On the 23rd (local time), the New York stock market closed mixed. The Standard & Poor's (S&P) 500 index turned down after three trading days, while the Nasdaq index hit an all-time high, supported by gains in technology stocks.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average fell 71.34 points (0.21%) from the previous close to finish at 33,874.24. The S&P 500 index closed down 4.60 points (0.11%) at 4,241.84. The tech-heavy Nasdaq index rose 18.47 points (0.13%) to close at 14,271.73. According to MarketWatch and others, Federal Reserve (Fed) Chair Jerome Powell’s inflation outlook remarks the previous day reassured investors. On the 22nd, Powell appeared before a special committee of the U.S. House of Representatives and said, "Inflationary pressures will be temporary," adding that the Fed would not preemptively raise interest rates due to inflation concerns.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= On the 23rd, the Korean stock market opened near an all-time high as Fed Chair Powell’s remarks eased market concerns by stating there would be no preemptive rate hikes. However, profit-taking desires remained high, causing the market to turn weak at times during the session. Nevertheless, the market closed higher amid supply-demand stability, including a reduction in foreign net selling. In particular, the strong performance of the Chinese stock market, supported by large-scale foreign net buying, is estimated to have had a positive impact.

Meanwhile, although the U.S. stock market showed a stock-specific trend and fluctuated around the flat line, hawkish comments from Fed officials are expected to weigh on the market. This issue is not an immediate problem and needs to be observed over time, so the likelihood of a significant impact expanding is low. Rather than focusing on the Fed’s hawkish stance, attention should be paid to changes in earnings estimates of individual companies ahead of the Q2 earnings season.

Considering this, the Korean stock market on the 24th is expected to start flat but challenge new all-time highs again, led by financial stocks and other economically sensitive sectors despite hawkish remarks from Fed officials.

◆Jiyoung Han & Seheon Kim, Researchers at Kiwoom Securities= As confirmed by recent Fed officials’ remarks, the Fed’s stance has shifted from dovish to hawkish since June. While there is consensus on the overall improvement of the U.S. economy, uncertainty surrounding the persistence of high inflation appears to have caused some Fed officials to change their stance. However, the lack of sharp changes in the dollar or market interest rates in the previous trading day suggests that market participants are gradually digesting Fed-related uncertainties. The Fed’s tightening cycle is already factored into the market, but debates within the Fed over temporary versus structural high inflation are expected to continue for some time. With the Q2 earnings season approaching, market participants’ focus is expected to shift toward earnings, but it is necessary to be cautious as inflation-related noise may continue to intensify.

On the 23rd, the KOSPI saw profit-taking mainly in economically sensitive stocks, but thanks to Powell’s remarks easing concerns about early Fed tightening and the strength of U.S. growth stocks, high-valuation growth stocks such as Naver (+8.3%) and Kakao (+6.6%) surged, leading to a rise (KOSPI +0.4%, KOSDAQ +0.5%).

By sector, services (+3.7%), pharmaceuticals (+1.9%), and non-metallic minerals (+1.3%) were strong, while machinery (-2.5%), construction (-2.2%), and electric & gas (-1.9%) were weak. In terms of supply and demand, foreigners and institutions recorded net sales of 9.7 billion KRW and 29.9 billion KRW respectively, while individuals posted net purchases of 83.2 billion KRW.

On the 24th, the Korean stock market is expected to show a firm upward trend while digesting hawkish remarks from some Fed officials amid expectations of export growth driven by strong manufacturing conditions in advanced countries. The better-than-expected manufacturing PMI in the U.S. and Europe in June, which was expected to peak out, reconfirms that the economic momentum in advanced countries has not slowed and is likely to extend Korea’s export performance improvement.

Of course, macroeconomic uncertainties remain, and profit-taking is likely from some mega-cap growth stocks such as Kakao and Naver that have recently surged sharply. However, considering the ongoing sector rotation, the downside of the index is expected to remain resilient.