[Good Morning Stock Market] US Stocks Plunge Due to Inflation Fear and Target Shock... KOSPI Expected to Start Lower

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Myung-Hwan Lee] On the 18th (local time), the U.S. stock market in New York sharply declined across the board due to inflation concerns and deteriorating earnings of retail companies such as Target. The Korean stock market is also expected to fall influenced by the U.S. market.

On that day, the Dow Jones Industrial Average closed at 31,490.07, down 1,164.52 points (3.57%) from the previous session, marking the largest drop since June 2020. The S&P 500, focused on large-cap stocks, fell 165.17 points (4.04%) to 3,923.68, and the tech-heavy Nasdaq dropped 566.37 points (4.73%) to 11,418.15, all closing lower.

The decline was particularly large among major retailers such as Target and Walmart. Target fell 24.93% from the previous trading day, marking its worst day since Black Monday in 1987. Following the Target shock, Macy's (-10.66%), Best Buy (-10.51%), and Kohl's (-11.02%) also experienced double-digit declines. Walmart fell 6.79% on the day after dropping 11.4% the previous day. Amazon also fell more than 7%.

On the 19th, the Korean stock market is expected to open lower due to the sharp drop in the U.S. market and inflation concerns, with a sector-by-sector market expected to unfold.

Sang-Young Seo, Head of Media Content at Mirae Asset Securities: "KOSPI expected to start down 1.5%... sector-by-sector market anticipated"

On the 19th, the Korean stock market is expected to open down around 1.5%, but a sector-by-sector market is anticipated as part of the process of absorbing sell-offs. The sharp decline in the U.S. market, triggered by corporate cost increases due to high inflation, is expected to have a negative impact on the Korean market. Although this was already anticipated, the volatility was high ahead of the U.S. options expiration day, so overall investor sentiment is expected to be significantly dampened. The fact that high inflation may reduce U.S. consumer spending highlights recession concerns, which could lead to downward revisions of earnings estimates for Korean companies that are highly dependent on exports.

Additionally, the supply chain pressure index released by the New York Federal Reserve Bank has risen again, which is expected to further dampen overall investor sentiment. However, it is worth noting that the U.S. has resumed embassy operations in the capital of Ukraine. This reduces the possibility of the Ukraine crisis escalating and could raise expectations for future peace negotiations, potentially having a positive effect on the market. Furthermore, the OECD leading economic index and U.S. real economy indicators remain robust, suggesting that the recession issue is unlikely to persist. Although the U.S. market plunged amid recession fears, if this was a temporary phenomenon ahead of the options expiration day, a rebound could be sought after the expiration.

Ji-Young Han, Researcher at Kiwoom Securities: "KOSPI's decline at the start is inevitable... cautious observation recommended"

On the 19th, the domestic stock market is expected to inevitably start lower due to concerns over real consumption contraction caused by inflation and the plunge in the U.S. market. The intraday volatility and daily price swings of major global markets have expanded significantly compared to usual, making market timing strategies difficult. Therefore, rather than quick trading responses based on the market mood of the day, it is appropriate to respond with cautious observation. Alternatively, a strategy of gradually buying large-cap stocks that can maintain profitability amid high exchange rates and inflationary environments could be a viable option.