[Good Morning Stock Market] Differentiation Amid Earnings Announcements... Need to Focus on Stability

Korean Stock Market Sector and Stock Differentiation Expected... Volatility Should Be Cautioned

On the 4th (local time), pedestrians are passing in front of the New York Stock Exchange building in Manhattan, New York City, USA. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market closed slightly higher, supported by strong earnings reports from individual companies. Analysts noted that differentiation by sector and stock continued due to concerns over rising costs. The domestic stock market is also expected to experience similar differentiation. Since the proportion of individual trading has decreased since COVID-19, there are warnings to be cautious of increased volatility caused by unstable supply and demand.

On the 19th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,457.31, up 0.56% from the previous day. The S&P 500 index rose 0.74% to 4,519.63, and the Nasdaq index increased 0.71% to 15,129.09. The S&P 500 index climbed to a level 0.58% below its all-time high in September. The Dow also approached the all-time high recorded in August.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= The U.S. stock market continued its strength amid sector differentiation, with the pharmaceutical and healthcare sectors performing well while some consumer staples sectors lagged. Johnson & Johnson reported better-than-expected earnings driven by COVID-19 vaccine sales, leading to gains in vaccine-related stocks and medical device sectors for COVID-19 diagnosis and treatment amid expectations of improved earnings. On the other hand, although P&G reported solid earnings, it revealed cost pressures due to high inflation, prompting some selling mainly in consumer goods sectors.

The Federal Reserve Bank of Atlanta lowered its estimate for U.S. third-quarter GDP growth to 0.5% through its real-time economic growth indicator 'GDPNow.' This was attributed to the impact of the COVID-19 Delta variant and supply chain issues. Although the U.S. economy shows signs of sharp contraction, the stock market remains strong based on earnings improvements, limiting the impact on investor sentiment. However, high inflation and slowing growth could hamper the market going forward. This makes the upcoming third-quarter GDP growth announcement on the 28th even more important.

Thomas Barkin, President of the Richmond Fed, expressed concerns that labor shortages could constrain economic growth. Michelle Bowman, Fed Governor, also pointed out that a lack of childcare facilities leading to reduced female labor participation could negatively affect the U.S. economy, and that older workers are unlikely to return to the labor market. Considering these concerns, as the earnings season progresses, attention will focus on economic slowdown and hawkish moves by the Federal Reserve, likely increasing volatility.

The domestic stock market is also expected to experience differentiation by stock after an initial rise due to these influences. Additionally, attention should be paid to China's loan interest rate decisions, as there have been recent speculations about a possible rate cut by the People's Bank of China.

◆Kwanghyun Kim, Researcher at Yuanta Securities= The KOSPI, which surpassed 3,300 in early July, recently fell below 3,000. Although it has recovered above 3,000, the upward momentum has clearly weakened. Notably, the proportion of individual investors, who have been active participants since COVID-19, has decreased?a significant change. With the exchange rate rising, foreign buying cannot be expected, making the supply-demand situation unstable.

Second-quarter earnings growth rates were lower than those of the first quarter, and third-quarter earnings growth rates are unlikely to surpass those of the second quarter. In other words, the overall earnings cycle of the stock market is already in decline. Furthermore, downward revisions to forecasts are occurring simultaneously, so further declines in growth rates should be anticipated. It would be fortunate if earnings meet expectations, but if not, the stock market could face a greater shock. Earnings remain uncertain.

Recent macroeconomic indicators have not shown stable trends. The won-dollar exchange rate approaching the 1,200 level, oil prices surpassing $80, and resulting inflationary pressures are factors increasing recent market volatility. In these uncertain times, what is needed is confirmation. Until confirmed, a cautious approach emphasizing stability is necessary.