[Good Morning Stock Market] Fed Confidence Boost Expected... Netflix, IBM, Tesla Volatile "Stock-Specific Market Unfolds"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 21st, the domestic stock market is expected to start higher, anticipating the earnings season. Due to the sharp fluctuations in the stock prices of U.S. companies such as Netflix, IBM, and Tesla, it is expected that the investment sentiment for related domestic stocks will be affected, leading to a stock-specific market.

The U.S. stock market closed mixed, focusing on the earnings season. Particularly, the Nasdaq declined as streaming and pandemic beneficiary stocks plummeted due to Netflix's (-35.12%) subscriber decrease, but the Dow Jones Industrial Average rose as IBM (+7.10%) surged on solid earnings, showing a mixed reaction depending on earnings results. In the late session, the Federal Reserve (Fed) announced robust U.S. economic growth through the Beige Book (economic outlook report), but with limited impact, and the weakening of expectations for the earnings season led to an expanded decline in the Nasdaq.

At the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,160.79, up 249.59 points (0.71%) from the previous session. The large-cap S&P 500 index closed slightly lower at 4,459.45, down 2.76 points (0.06%). The tech-heavy Nasdaq index recorded 13,453.07, down 166.59 points (1.22%).

Netflix announced after the previous day's close that its first-quarter subscriber count unexpectedly decreased by 200,000. This was the first decline in over a decade, causing significant disappointment in the market, which had expected a substantial increase in subscribers. Netflix's stock price plummeted over 35% that day, worsening investment sentiment for tech stocks. IBM reported sales and net income exceeding expectations, pushing its stock price up more than 7%. By sector, real estate (+1.9%), consumer staples (+1.4%), and healthcare (+1.3%) were strong, while communication (-4.1%), consumer discretionary (-1.4%), and technology (-0.1%) were weak.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Unlike the U.S. stock market, which rose despite global growth slowdown and a sharp rise in government bond yields, the Korean stock market fell due to negative impacts from related issues. However, after Japan's Chief Cabinet Secretary expressed concerns about yen weakness and announced strengthened monitoring, the yen strengthened, causing the yen-dollar exchange rate to rise. Reopening-related companies and the food and beverage sector with strong pricing power led the market, reducing the decline. Meanwhile, the Nasdaq's decline in the U.S. market due to Netflix's earnings announcement is a burden, but since this was already reflected the previous day, its impact is expected to be limited. Rather, the solid earnings of semiconductor equipment manufacturer ASML and the rise of other semiconductor sectors despite the Nasdaq's decline are positive for the investment sentiment of related companies.

Additionally, the Fed's confidence was highlighted by mentioning robust U.S. economic growth and upward revisions to the economic outlook through the Beige Book. Furthermore, the increase in demand from government bond auctions and recent pullbacks following the rise in U.S. Treasury yields, as well as the potential inflow of a won-strengthening trend due to dollar weakness, are also favorable. Considering this, the Korean stock market is expected to start about 0.3% higher and show solid performance, anticipating the earnings season.

◆ Han Ji-young, Researcher at Kiwoom Securities = As the first-quarter earnings season officially begins, sensitivity to earnings is increasing more than to macro issues. Among the S&P 500 companies that have reported earnings so far, about 12% have announced results, with approximately 80% exceeding consensus estimates, indicating a smooth start to the U.S. first-quarter earnings season. The resilience of the index's downside, despite macro uncertainties such as the U.S. 10-year yield approaching 3%, dollar strength, and concerns over a 75bp Fed rate hike, can be attributed to this. In other words, most market participants have lowered their expectations for the first-quarter earnings season, and the increasing number of companies delivering better-than-expected results is providing downside rigidity to the index.

However, as confirmed by Netflix's stock plunge due to the subscriber loss shock, the market is harsh on companies that fail to meet expectations, and it is necessary to keep in mind that the shock is spreading to related companies within the sector. Given the possibility of similar outcomes in upcoming earnings results from other big tech companies such as Apple, Amazon, and Microsoft, a strategy of responding after confirmation rather than preemptive betting is deemed appropriate.

Today, the domestic stock market is expected to show an upward trend, influenced by the perception that much of the Netflix stock plunge has already been reflected in the previous trading day, domestic individual earnings issues, and export results up to the 20th. Tesla, which reported earnings after the U.S. market close, posted an earnings surprise and indicated that the impact of the Shanghai shutdown in March would be limited, leading to a sharp rise of over 4% in after-hours trading, which is a positive factor. This is expected to contribute to improved investment sentiment for domestic electric vehicle and secondary battery value chain stocks, which had recently been undergoing a short-term valuation-driven pause.