KB Securities Report
[Asia Economy Reporter Myunghwan Lee] As the US stock market enters the Q2 earnings season, securities firms have forecasted that economic activity could contract due to the rapid spread of COVID-19 variants.
On the 16th, KB Securities analyzed, "The first landmine of this earnings season is the spread of variant viruses that could accelerate economic contraction." Recently, the US has seen a rapid spread of the Omicron subvariant BA.5, with the average number of new hospital admissions over the past week increasing by more than 300% compared to the previous week's low. However, KB Securities expects that since this is not the first time the COVID-19 virus has spread, the market will not experience the same level of turmoil as during the early stages of the pandemic in 2020.
Nonetheless, they pointed out that at a time when economic expansion is slowing, the resurgence of highly transmissible variant viruses could accelerate the contraction of economic activity. Last week, new unemployment claims in the US rose to 244,000, up from 235,000 the previous week. The initial forecast was also 235,000, so the actual figure exceeded expectations.
KB Securities explained that there have been cases where the labor market contracted or recovery stalled when the virus spread. In Q4 2020, the third wave of COVID-19 caused an increase in new unemployment claims. During the spread of the Delta variant in Q2 last year, the decline in new unemployment claims halted. KB Securities anticipates that with the spread of the BA.5 variant, new unemployment claims, which have remained low since the end of last year compared to pre-pandemic levels, could rebound.
Meanwhile, the US stock market's Q2 earnings season officially began on the 14th with financial stocks. The first to report, JP Morgan's Q2 earnings fell short of market expectations. Morgan Stanley, which announced earnings on the 14th, saw a 29% decrease in net profit compared to last year. However, while CEOs of financial firms view the possibility of a sharp downturn as low, they do not consider the risk of prolonged economic weakness to be serious. Jamie Dimon, CEO of JP Morgan, assessed that consumers are in a very good position with spending, abundant jobs, and rising wages, but he also diagnosed that consumer sentiment is clearly weakening.
KB Securities researcher Ilhyuk Kim stated, "During a period when economic expansion momentum is weakening, variant viruses can accelerate economic contraction."
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