[Good Morning Stock Market] New York Stock Market, Major Indices Plunge... Weakness Centered on Growth Stocks

Dow Jones down 1.07%, S&P 500 down 1.94%, Nasdaq down 3.34%
US government, households, and businesses show high levels of fiscal capacity and cash holdings

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Growth stocks are underperforming as the U.S. Federal Reserve (Fed) shows a more hawkish stance than expected. Hawkishness refers to a policy preference for tightening during economic overheating. However, the U.S. government, households, and businesses all demonstrated high levels of fiscal capacity and cash holdings.

On the 5th (local time), the New York stock market plunged across the board. At the New York Stock Exchange that day, the Dow Jones Industrial Average closed at 36,407.11, down 1.07% (392.54 points) from the previous trading day. The S&P 500 index closed at 4,700.58, down 1.94% (92.96 points) from the previous session. The tech-heavy Nasdaq closed at 15,100.17, down 3.34% (522.55 points) from the previous day.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Concerns over the hawkish Fed caused the underperformance of growth stocks.

The Fed released the minutes of the Federal Open Market Committee (FOMC) last month. Most members observed that, considering the recent pace of labor market improvement, maximum employment would be achieved before interest rate hikes. They also announced that the conditions for rate hikes could be met relatively quickly. Some members argued that rates should be raised immediately after the end of asset purchase tapering, reflecting a more hawkish tone than expected in the minutes.

The underperformance of growth stocks such as technology shares continues. Software companies Salesforce and Adobe fell 8.28% and 7.14%, respectively, while it is also noteworthy that global financial firm UBS downgraded its investment ratings. UBS mentioned that although service spending expanded due to the COVID-19 pandemic last year, such spending is unlikely to be significant this year. They also forecast a slowdown in growth due to reduced operating and marketing expenses.

This suggests that not only software companies but also non-face-to-face related expenditures, which increased due to the pandemic, may slow down as the economy normalizes. Consequently, declines in software, streaming, and cloud-related companies continue.

(Provided by NH Investment & Securities)

◆ Jo Yeon-joo, Researcher at NH Investment & Securities = U.S. President Joe Biden’s social welfare budget (Build Back Better) bill agreement failed. However, the U.S. still has disaster relief funds of about $500 billion (approximately 599.75 trillion KRW) and infrastructure budgets of $1.2 trillion remaining. Considering the debt burden reduction from increased tax revenues, there is still room to implement additional fiscal policies for medium- to long-term investment and consumption improvements, even if not as strong as direct cash payments in the form of disaster relief checks.

The financial soundness of U.S. households is also solid. Due to government support payments, excess savings surged, and current household cash balances stand at about $2.9 trillion. The scale of excess savings in European households is also at an all-time high. Cash accumulated during the COVID-19 situation is expected to be actively spent this year.

U.S. companies’ net cash assets also reached a record high of $3.1 trillion as of Q2 last year. In particular, the net cash asset growth rate expanded most significantly in transportation, construction, real estate, consumer services, and retail sectors. This implies that even if COVID-19 variants spread, the downside for sectors vulnerable to COVID-19 will be supported.