[Good Morning Stock Market] Investor Sentiment Frozen Solid by Hawkish Fed

[Asia Economy Reporter Ji Yeon-jin] The U.S. stock market fell due to a decline in financial sector earnings amid a sharp rise in Treasury yields that dampened investor sentiment. Higher-than-expected crude oil prices and persistent inflation concerns further increased market pressure. The Dow Jones Industrial Average closed at 35,368.47, down 543.34 points (1.51%) from the previous session. The Standard & Poor's (S&P) 500 index dropped 1.84%, while the tech-heavy Nasdaq index plunged 2.6%.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = The decline in the U.S. stock market, driven by the heightened possibility of aggressive Federal Reserve policy changes, poses a burden on the Korean stock market. In particular, the increased likelihood of a rate hike in March, with some forecasts suggesting a 50 basis point increase, is a factor that dampens investor sentiment in emerging markets such as Korea.

However, considering that the sharp rise in U.S. Treasury yields has already impacted the Korean stock market and that the slowdown in U.S. financial sector earnings was anticipated by the market, the likelihood of prolonged underperformance is low. Rather, with the upcoming earnings season for U.S. tech stocks and Korean companies starting next week, expectations for corporate results are rising, which is expected to lead to a market rebound.

◆ Na Jeong-hwan, Researcher at Cape Investment & Securities = Ahead of LG Energy Solution’s initial public offering (IPO), market volatility has increased due to supply and demand issues, and the domestic stock market partially reflected the recent rise in U.S. interest rates. Due to supply-demand factors and uncertainties related to U.S. monetary policy, the Korean stock market is expected to continue experiencing volatility, potentially reaching the 2,800 level, which corresponds to a KOSPI price-to-earnings ratio (PER) of about 10 times. However, since January 27, as uncertainties ease, a rebound is expected mainly in stocks and sectors with solid earnings.

◆ Kim Yu-mi, Researcher at Kiwoom Securities = The U.S. dollar strengthened as uncertainty over the timing and pace of the Federal Reserve’s monetary tightening led to a sharp rise in Treasury yields and a decline in the New York stock market, increasing demand for safe-haven assets. Concerns over U.S. inflation remain unresolved, and opinions have emerged that the Federal Open Market Committee (FOMC) in March may raise the U.S. benchmark interest rate by more than the market consensus. This caused U.S. Treasury yields to surge, acting as a strong factor supporting the dollar.

International crude oil prices rose amid supply disruption concerns. Ongoing tensions between Russia and Ukraine have heightened worries about disruptions in Russian oil production, while news of an attack on oil facilities in the United Arab Emirates highlighted geopolitical risks in the Middle East. Since the impact of the Omicron variant on demand is limited, concerns over supply shortages in the oil market continue to rise, driving prices up. As a result, crude oil prices climbed to around $85 per barrel. Meanwhile, gold prices fell due to the rise in U.S. Treasury yields and the strengthening dollar, influenced by expectations that the Federal Reserve may adopt a more hawkish stance than anticipated.