[Good Morning Stock Market] US Stock Market Infected by 'Omicron'... Domestic Market Faces 'Burden'

Dow Jones down 1.34%, Nasdaq down 1.83%
Omicron cases and tapering acceleration cause market shake
"Concerns over decline in liquidity-driven stocks"

KOSPI expected to hold 2800 level this month
"Investment strategy should focus on oversold stocks"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] The U.S. stock market closed sharply lower amid concerns over the emergence of 'Omicron' cases and a shift in monetary policy. Despite a rebound in the manufacturing index, which had heightened worries about supply chain instability, the market appeared to react more strongly to the fear of Omicron. Accordingly, it is predicted that the domestic stock market on the 2nd will find it difficult to show the same strong upward momentum as the previous day.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Domestic stock market expected to start lower... stock-specific market likely”

On the 1st, the U.S. stock market closed lower amid high volatility. Early in the session, there was an upward trend due to a rebound buying following the sharp drop the previous day and easing concerns over supply chain issues. The 'ISM Manufacturing Index' slightly exceeded expectations at 61.1 versus the forecast of 61, raising hopes that supply chain instability would ease. However, after Federal Reserve Chairman Powell stated at the House Financial Services Committee hearing, following the Senate hearing the day before, that the Federal Open Market Committee (FOMC) is considering accelerating the tapering (asset purchase reduction) pace this month, the index reversed its morning gains. Additionally, news of Omicron cases in the U.S. dampened investor sentiment toward risk assets. On that day, the Dow Jones Industrial Average fell 1.34%, while the Nasdaq (-1.83%) and S&P 500 (-1.18%) also declined.

The fact that the U.S. stock market rose early in the session due to improved economic indicators and rebound buying from the previous day's sharp drop could be positive for the domestic market. However, the fact that these factors faded in the latter part of the session due to Omicron case news is negative. The rapid deterioration of investor sentiment following the first Omicron case in the U.S. is expected to weigh on the domestic stock market.

As a result, the domestic stock market is expected to start lower. Regarding domestic Omicron cases, considering that vaccinated patients have exhibited only mild symptoms, the likelihood of widespread shock is low. Given that the previous day's U.S. market saw selling pressure mainly in stocks that had risen sharply due to liquidity rather than valuation, it is expected that the domestic market will also show a stock-specific market.

Kyoungmin Lee, Researcher at Daishin Securities: “Trading strategy focused on oversold stocks, with a short investment horizon”

This month, the KOSPI is expected to secure support around the 2800 level after a short-term sharp decline and begin a technical rebound. Given the high likelihood that the global financial market will be swayed by the Omicron issue in the near term, sharp fluctuations in the KOSPI are inevitable. Around the 10th of this month, as vaccine efficacy and treatment effectiveness are confirmed, the fear triggered by Omicron is expected to peak. Subsequently, relief is expected to flow in due to easing inflationary pressures from sharp declines in oil and raw materials prices and a retreat in early rate hike expectations amid increased economic uncertainty.

However, it is predicted that the technical rebound will not lead to a sustained trend reversal. Even after overcoming the shock from Omicron, concerns remain high over consumption momentum and demand slowdown due to the winter resurgence of COVID-19, as well as the continued global bottlenecks. In conclusion, as the Q4 earnings season progresses, earnings forecasts are likely to be further downgraded, making a level-down in the KOSPI inevitable.

Investment strategies should focus on neglected and oversold stocks aiming for a technical rebound. Sectors with short-term oversold stocks and stable Q4 earnings outlooks include energy, shipbuilding, and steel. If these sectors rebound, it is advisable to reduce exposure. Consumer staple-related sectors benefiting from the with-COVID era, such as hotels, leisure, cosmetics, and apparel, have earnings momentum, and accumulating positions at lows to hold through Q1 2022 is positive for improving returns.