[Good Morning Stock Market] Nasdaq Plunges 5% on US CPI Shock... 'Ultra Step' Stronger Than Giant Step Possible

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] The three major indices of the New York Stock Exchange plunged sharply. The U.S. August Consumer Price Index (CPI) was announced at 8.3% year-over-year, exceeding expectations, and as inflation did not subside as easily as anticipated, speculation about a more than 1% interest rate hike arose, leading to a flood of sell-offs. Consequently, on the 14th, the Korean stock market is also expected to give back the previous day's gains due to panic selling triggered by the CPI shock.

On the previous day, the 13th (local time), at the New York Stock Exchange, the Dow Jones Industrial Average closed at 31,104.97, down 3.94% from the previous session. The Standard & Poor's (S&P) 500 index fell 4.32% to 3,932.69, and the tech-heavy Nasdaq index plunged 5.16% to 11,633.57. The decline rate of the three major indices is the largest in 27 months since June 11, 2020, when concerns about a resurgence of COVID-19 caused a 5-6% drop.

In particular, the decline among large technology stocks was prominent.

Apple, Microsoft (MS), Alphabet, and Amazon all fell about 5-7%, while Nvidia and Meta Platforms' stock prices plummeted more than 9%. Tesla also dropped 4%, and Intel, Netflix, and Qualcomm fell more than 6-7%. All 11 sectors within the S&P 500 index declined, with communication, technology, and consumer discretionary stocks falling more than 5%, and real estate, industrials, and financials also dropping more than 3%.

◆Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities: "KOSPI Expected to Start Down Around 2%"

The Korean stock market rose the previous day ahead of the U.S. consumer price index announcement. In particular, the continued weakness of the dollar during the Chuseok holiday period was reflected, which is interpreted as having positively influenced the preference for risk assets. Additionally, program buying by institutions driven by large-scale net futures purchases by foreigners also positively affected supply and demand, leading the KOSPI to close up 2.74% and the KOSDAQ up 2.44%.

However, the sharp decline in the U.S. stock market, highlighting the possibility of prolonged inflationary pressures centered on a broad range of items, is expected to weigh on the Korean stock market. Especially, the increased likelihood of a 100 basis point rate hike at the September FOMC, showing a different pattern from the previous day, is expected to act as a factor dampening investor sentiment. Furthermore, news that Taiwan is lobbying the European Union (EU) to prepare sanctions against China, along with reports that the U.S. is in the early stages of discussing sanctions against China to prevent a Chinese attack on Taiwan, could expand U.S.-China tensions, adding to the burden.

Nonetheless, it is worth noting that housing costs, which have driven U.S. inflation, are expected to stabilize downward as housing prices continue to decline. Considering that the CPI excluding housing costs announced that prices fell 0.2% month-over-month, if housing costs stabilize in the future, expectations for downward inflation stabilization will increase. Taking this into account, the Korean stock market is expected to start down around 2% in early trading, but rather than an expanded decline, attention will be paid to the trend of the U.S. dollar and changes in the Chinese stock market, with expectations for broader changes.

◆Jiyoung Han, Researcher at Kiwoom Securities: "Possibility of 'Ultra Step' Rate Hike Increases Due to U.S. CPI Shock... KOSPI Likely to Give Back Previous Day's Gains"

The U.S. August CPI was 8.3% year-over-year, showing a decline for two consecutive months following July's 8.5%, confirming the peak of inflation. However, it exceeded the market consensus of 8.1%, which had expected it could be as low as 7.9%, and the core CPI also came out at 6.3%, higher than the consensus of 6.1%, delivering a shock to the stock market. In particular, although energy prices fell, housing costs and food and beverage-related items were high, driving the CPI increase.

Accordingly, while a 75 basis point hike at the September FOMC had been considered a done deal, the probability of a 100 basis point rate hike has risen sharply after the CPI announcement, making an ultra step impossible to rule out. Especially, as the blackout period prohibiting comments begins ahead of next week's FOMC, it is impossible to hear the Fed's evaluation of this CPI result, so aggressive forecasts such as a 100 basis point hike are expected to cause market uncertainty until the FOMC.

The domestic stock market surged over 2% the previous day, supported by large-scale simultaneous net buying by foreigners and institutions amid external positive factors during the holiday period, but today it is expected to give back the previous day's gains due to panic selling in the U.S. stock market triggered by the August CPI shock. While there is a possibility of panic selling in the domestic market, it is judged appropriate to respond to the market with a strategy of refraining from active position changes until the September FOMC rather than joining the panic selling. From a sector perspective, caution is needed against downside pressure on growth stocks sensitive to interest rate changes, including semiconductors, which surged more than 4% the previous day. On the other hand, considering that eco-friendly stocks such as electric vehicles and defensive stocks performed well in the U.S. stock market, related stocks in the domestic market are also expected to show relatively favorable price trends.