[Good Morning Market] New York Stock Market Closes at All-Time High... Possibility of Increased Volatility Despite Rebound

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The New York stock market continued its record-high trend following improved weekly unemployment data. The Dow Jones Industrial Average and the S&P 500, which had set record highs for two consecutive days, closed at all-time highs again. The Nasdaq Composite turned positive after an early session dip.

On the 12th (Eastern Time), at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,499.85, up 14.88 points (0.04%) from the previous session. The Standard & Poor's (S&P) 500 index rose 13.13 points (0.30%) to 4,460.83, and the tech-heavy Nasdaq Composite closed at 14,816.26, up 51.13 points (0.35%).

Investors focused on weekly unemployment claims, producer prices, and corporate earnings. Expectations for employment recovery grew as the number of weekly unemployment insurance claims in the U.S. decreased for the third consecutive week. The U.S. Department of Labor announced that the seasonally adjusted number of unemployment insurance claimants for the week ending July 7 fell by 12,000 to 375,000 compared to the previous week.

The U.S. Producer Price Index (PPI) for July rose 1.0% month-over-month, exceeding market expectations. Although the month-over-month increase was similar to the previous month, the year-over-year increase reached 7.8%, surpassing June's 7.3%. This year-over-year rise marked a new record high since data collection began in 2010.

Nevertheless, the perception that inflation may have peaked was reinforced by news that the previously released core Consumer Price Index (CPI) fell short of both the previous month and market expectations. The July core CPI rose 0.3% month-over-month and 4.3% year-over-year, both below June's 0.9% and 4.5% increases.

The 10-year Treasury yield closed at around 1.36%, up approximately 3 basis points from the previous session.

◆ Yumi Kim, Kiwoom Securities Researcher = The market is expected to strongly seek hints about tapering (reduction of asset purchases) from the July Federal Open Market Committee (FOMC) minutes. The minutes raised the economic outlook, leaving the possibility of tapering open. Although recent Federal Reserve (Fed) officials' comments have been somewhat mixed, the number of officials advocating the need for tapering is gradually increasing, suggesting the minutes may be interpreted as somewhat hawkish. If the minutes confirm that Fed officials have discussed tapering more concretely than the market expected, the likelihood of monetary policy normalization will increase further.

Additionally, if Federal Reserve Chair Jerome Powell's speech scheduled for the 18th strengthens optimism about the economy and raises the possibility of tapering, it could lead to a stronger dollar and higher U.S. Treasury yields. If uncertainty remains high, the upward trend in the USD/KRW exchange rate is also expected to continue for some time.

◆ Inji Jeong, Yuanta Securities Researcher = The KOSPI index broke below the upward trendline drawn from the March 2020 low on the weekly chart at the end of July. This signals a potential entry into a medium- to long-term correction phase due to the damage to the long-term uptrend.

However, the 30-week moving average remains an important pivot point, and since the index has not yet fallen below this moving average, further confirmation is needed. In the medium term, a sideways market with a slight downward bias is ongoing. There is significant support around the 3,200 level, and the index successfully held this support on the 12th, suggesting a possibility of a short-term rebound.

Foreign investors' cumulative positions in KOSPI 200 futures are rebounding from a net selling phase. Recently, when foreign investors' cumulative futures positions rebounded from net selling territory, the stock price also showed signs of forming a short-term bottom. The V-KOSPI, which measures volatility in the options market, remains around 14%, indicating that a full-scale volatility expansion has not yet occurred. However, in the medium term, a bottom formation is underway, so even if the stock price rebounds this time, the possibility of increased volatility still exists.