[Good Morning Stock Market] US Stock Market Welcomes Santa, Only IT Rises in Korean Stock Market

Omicron Concerns Ease, US Consumer Sentiment Strong
S&P Hits All-Time High, Dow and Nasdaq Close Higher
"Index Rebounds Following FOMC Adjustment"

KOSPI Shows Strength Only in IT Sector Amid Institutional and Foreign Demand

[Asia Economy Reporter Minji Lee] As concerns over the spread of the Omicron variant virus ease, the U.S. stock market is showing an upward trend, and forecasts suggest that the U.S. stock market will continue its rise through the end of the year. Profit outlooks for reopening-related stocks are also improving, which is expected to increase interest in sectors such as airlines and casinos. However, in the domestic stock market, since the profit outlooks for related companies have not changed significantly, IT-related stocks, which are favored by institutional and foreign investors, are predicted to perform strongly.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Omicron concerns ease... Expectation for rise in secondary batteries and semiconductors”

The U.S. stock market closed higher ahead of the holidays as risk asset preference increased. The Dow Jones and Nasdaq rose 0.55% and 0.85%, respectively, while the S&P 500 increased 0.62%, closing at an all-time high.

[Image source=Yonhap News]

Despite a sharp increase in new COVID-19 cases due to Omicron, the news that the severity is mild, reported by major research institutions in the UK and the U.S., is believed to have influenced the market positively. Market participants have been closely watching how serious Omicron is and how effective vaccines and treatments are. The announcements from individual research institutes in the UK and France, as well as the South African National Institute for Communicable Diseases, stating a lower risk level, positively impacted the stock market. Furthermore, many vaccine companies, including Moderna and AstraZeneca, claimed their vaccines are effective against Omicron, easing related concerns. Additionally, the announcement that Pfizer’s orally administered treatment, which received emergency FDA approval, is showing positive effects against Omicron led to strength in travel, airline, and leisure sectors.

Meanwhile, U.S. personal income in November rose 0.4% month-over-month, and consumer spending increased by 0.6%, meeting market expectations. Although new COVID-19 cases surged from around 70,000 in early November to over 200,000 currently, consumer sentiment has not deteriorated, indicating increased risk asset preference in the stock market.

Accordingly, the domestic stock market is expected to rise, influenced by the U.S. market’s upward trend. Notably, Tesla and Micron showed gains due to expectations of increased Q4 vehicle deliveries and solid earnings reports, which are anticipated to be positive factors for related stocks in the domestic market. Considering this, the domestic market is expected to start with about a 0.5% rise and show strength centered on stocks with high earnings expectations. Specifically, attention should be paid to secondary battery and semiconductor sectors driven by the electric vehicle sector’s strength, as well as large export-related stocks.

Namjoong Moon, Researcher at Daishin Securities: “U.S. stock market recovers from December FOMC aftereffects... Expectation for Santa Rally”

The Santa Rally is one of the calendar effects where the stock market’s performance improves or worsens monthly. It usually refers to the period from December 5th to February 2nd of the following year, but if delayed, it appears as the January effect.

December inevitably raises caution in the U.S. stock market due to the sudden emergence of the Omicron variant and the Federal Open Market Committee (FOMC) regular meeting. The increased volatility in the U.S. stock market following the December FOMC appears to be an adjustment period to the hawkish aftereffects of the FOMC. In this context, this year’s Santa Rally in the U.S. stock market is expected to manifest as a rebound following the correction after the December FOMC.

There are four variables to monitor as the Santa Rally approaches: the spread of Omicron, the aftereffects of the FOMC, the effect of China’s Loan Prime Rate (LPR) cut, and the human infrastructure investment bill. Regarding Omicron, if partial lockdowns are not introduced in the U.S., the impact on the stock market is expected to be limited. The acceleration of tapering is anticipated to reduce inflationary pressures, and the LPR cut in China is expected to become a driver for capital inflows to the U.S. with some time lag. The human infrastructure investment bill is expected to pass through the budget reconciliation process in January, even if its scale is reduced through communication with Senator Joe Manchin.

Considering these points, the U.S. stock market is expected to exit the adjustment period following the December FOMC and experience a Santa Rally rebound based on these four favorable variables through the end of the year.

Taehyun Seol, Researcher at DB Financial Investment: “U.S. reopening-related stocks strong... Domestic market at bottom”

Concerns over the passage of the U.S. fiscal stimulus bill, which had exerted downward pressure on the S&P 500 index, and worries about the spread of the Omicron variant have eased, leading to a rebound in the index. The emergency approval of Pfizer’s COVID-19 treatment also influenced the market, with reopening-related sectors such as travel, casinos, and airlines showing strength. Among the top weekly gainers by sector, the S&P 500 rose 2.28%, with the consumer discretionary sector increasing by 3.82%.

However, the domestic stock market showed a somewhat different pattern from the S&P 500. News of Pfizer’s treatment led to a decline in the healthcare sector, and only the IT sector, favored by institutional and foreign investors, has shown an eight-week consecutive rise. Weekly returns show the IT sector rose about 2.31%, while consumer discretionary fell 0.18%, marking a second consecutive week of decline.

Within the S&P 500, reopening-related stocks continue to show strong profit outlooks, but related companies in the KOSPI are showing a sideways trend in profit forecasts. Looking at the 12-month forward EPS in the S&P 500, profit outlooks for reopening-related stocks such as airlines, resorts, and entertainment continue to rise, and Nike, which experienced production disruptions due to COVID-19, showed an earnings surprise along with upward revisions in profit forecasts. In contrast, the KOSPI has been consolidating for three consecutive weeks, indicating it is bottoming out.