[Good Morning Stock Market] US Stock Market Full of Negative Factors... KOSPI Expected to Remain Cautious Ahead of Chuseok

[Asia Economy Reporter Ji Yeon-jin] Over the past weekend, the U.S. stock market closed lower as a series of negative factors emerged simultaneously, including COVID-19 vaccine mandates, tax increase considerations on share buybacks, and Apple’s antitrust issues. On the 11th (local time), the Dow Jones Industrial Average fell 0.78%, while the Nasdaq and S&P 500 declined by 0.87% and 0.77%, respectively. The domestic stock market is also expected to see cautious trading ahead of the Chuseok holiday amid concerns over economic slowdown due to the COVID-19 Delta variant.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The COVID-19 vaccine mandate issue gained attention as the Biden administration considered extending vaccine requirements from federal employees to international travelers. Despite downward earnings revisions, airline stocks, including American Airlines (-6.19%), which had been rising, plunged sharply, dragging down cruise, travel, leisure, hotel, and casino sectors.

Democratic senators, including the Senate Finance Committee chair, proposed strengthening tax regulations to impose taxes on share buybacks. This is presumed to be a response to companies prioritizing share buybacks over investments following former President Trump’s corporate tax cuts. The impact could reduce share buybacks, negatively affecting the stock market. Although Republicans oppose this and passage is unlikely, the tax increase issue may persist into the fourth quarter and warrants attention.

A California court ruled that Apple (-3.31%)’s refusal to allow links to payment methods other than its in-app payment system on the App Store is illegal. This antitrust issue intensified, widening Apple’s stock decline. The debt ceiling issue also hampered the stock market.

◆ Kyungmin Lee, Researcher at Daishin Securities = The Chuseok holiday is just a week away. This year’s Chuseok holiday is relatively long at five days, and with the U.S. Federal Open Market Committee (FOMC) meeting scheduled shortly after, risk-averse sentiment may increase. Since 2010, the KOSPI has generally underperformed in the week leading up to Chuseok, with an average weekly return of -0.47% and seven out of twelve years (58%) showing weakness. It is a time to be cautious ahead of the holiday.

The fundamental issues unsettling global financial markets recently are the simultaneous inflow of concerns about global economic slowdown and the Federal Reserve’s monetary policy shift. Although difficult to coexist, if both materialize simultaneously, it would create a negative combination for global financial markets. Especially this week, with U.S. and China’s real economy data releases and the September FOMC meeting right after Chuseok, cautionary sentiment may heighten.

◆ Jiyoung Han, Researcher at Kiwoom Securities = The Korean stock market is expected to show a pattern of rising early in the week and falling later, influenced by major U.S. and Chinese real economy indicators such as U.S. August consumer prices, retail sales, industrial production, Apple’s iPhone 13 event, and stock price changes of major domestic internet platform companies.

Concerns about economic slowdown due to the Delta variant spread, September FOMC caution, and fears of a sharp rise in trend inflation remain as negative factors surrounding major global stock markets. However, considering these issues have been reflected multiple times and the downward pressure on stock prices has been limited, it is judged that the market has developed some resilience to these negative factors. Therefore, the downside pressure on the stock market from macro events scheduled this week is expected to be limited. Nonetheless, with a long holiday approaching next week, it is appropriate to prepare for increased volatility caused by reduced trading and sudden supply-demand shifts due to deepening cautious sentiment from midweek onward.