[Good Morning Stock Market] Volatile Market Expected Ahead of FOMC... Will Semiconductor Stocks Show Strength?

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Myung-hwan Lee] On the 19th, the domestic stock market is expected to show an upward trend centered on semiconductor-related stocks amid cautious sentiment ahead of the U.S. Federal Reserve's (Fed) September Federal Open Market Committee (FOMC) meeting. This is due to the rise in the Philadelphia Semiconductor Index, which influences domestic semiconductor stocks.

On the previous trading day, September 16 (local time), the Philadelphia Semiconductor Index closed up 0.53% (13.60 points) at 2,563.14 compared to the previous trading day. However, major indices on the New York Stock Exchange closed lower. The Nasdaq Composite Index, focused on technology stocks, fell 0.90% (103.95 points) to 11,448.40, the Dow Jones Industrial Average dropped 0.45% (139.40 points) to 30,822.42, and the S&P 500 Index also closed down 0.72% (28.02 points) at 3,873.33.

The Fed will hold its regular Federal Open Market Committee (FOMC) meeting on September 20-21. The market consensus is that the Fed will implement a third consecutive 'Giant Step' (a 0.75 percentage point increase in the benchmark interest rate) at the September FOMC. However, some speculate that the Fed might take an 'Ultra Step,' raising rates by 1 percentage point at once.

Sang-young Seo, Researcher at Mirae Asset Securities: "KOSPI expected to start higher... Semiconductor sector likely to show strong performance"

On the 19th, the domestic stock market is expected to start with an increase of around 0.3% and then show solid performance centered on the semiconductor sector.

Although the U.S. stock market declined on the 16th amid recession concerns, it narrowed losses in the latter part of the session, which is favorable. In particular, the Philadelphia Semiconductor Index rose 0.53%, which is positive. Considering that the factors causing the U.S. market decline on the 16th have already been reflected in the domestic market, it is expected that the market will respond more sensitively to positive factors than to negative ones.

The continuous decline in U.S. expected inflation ahead of the FOMC is also positive. Although the Fed's rate hike pace is rapid, it is expected to gradually moderate. While issues such as U.S.-China tensions and recession risks remain, the recent rebound buying sentiment following the decline is still present.

Ji-young Han, Researcher at Kiwoom Securities: "Volatile market ahead of FOMC... Stock price resilience expected to improve"

This week, the domestic stock market is expected to enter a volatile phase influenced by the intensity of the rate hike and changes in policy pace at the September FOMC, as well as the Purchasing Managers' Index (PMI) of major countries' manufacturing sectors in September. The weekly KOSPI forecast range is 2,320 to 2,440 points.

Since demand slowdown caused by aggressive tightening by the Fed and other central banks has affected the stock market, the future direction of the economy and stock market will be determined by changes in the intensity of their tightening. Ultimately, the importance of the upcoming September FOMC event is higher than ever, and cautious sentiment in the stock market is expected to intensify until the event.

Unless hawkish signals exceeding the level of Fed Chair Jerome Powell's remarks at the Jackson Hole meeting at the end of August emerge, the possibility of a stock price correction severe enough to test new lows is limited. Therefore, although volatility will increase due to spreading caution before the FOMC, it is considered appropriate to respond with the assumption that stock price resilience will improve after the FOMC, supported by the materialization of negative factors as a foregone conclusion.