[Good Morning Stock Market] US Stocks Close Mixed Amid Big Tech Weakness... KOSPI Expected to Start Lower

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Myunghwan Lee] On the 28th, the domestic stock market is expected to start lower influenced by the weak performance of the U.S. stock market, centered on large technology stocks.

On the 27th (local time), the Dow Jones Industrial Average closed at 32,033.28, up 0.61% (194.17 points) from the previous trading day. The S&P 500 index fell 0.61% (23.30 points) to 3,807.30, and the tech-heavy Nasdaq index dropped 1.63% (178.32 points) to 10,792.68.

Large technology stocks listed on the U.S. stock market dragged the indices down after consecutively reporting earnings below expectations. Meta, the parent company of Facebook, announced third-quarter net income below expectations after the market closed the previous day, causing its stock price to plunge 24%. Amazon’s sales slightly missed expectations, and its fourth-quarter outlook was significantly below forecasts. Apple also exceeded sales and net income expectations but fell short on iPhone sales and other segments.

The European Central Bank (ECB) also raised its key interest rate by 0.75 percentage points, marking a second consecutive giant step. At the monetary policy meeting, the ECB decided to raise the key interest rate to 2.00%, and the deposit rate and marginal lending rate were also increased by 0.75 percentage points each to 1.5% and 2.25%, respectively.

Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities: "KOSPI to start lower... a process of absorbing sell-offs will proceed"

[Image source=AP Yonhap News]

On the 28th, the KOSPI is expected to start down about 0.7% and then show a process of absorbing sell-offs. The U.S. stock market’s decline, especially the Nasdaq’s drop due to increased volatility after earnings announcements from large tech stocks despite solid growth rates, is likely to negatively impact the domestic market.

In particular, the clear strength of the U.S. dollar following the ECB’s monetary policy meeting is a factor dampening investor sentiment. However, although the dollar is expected to remain strong, the limited changes in the non-deliverable forward (NDF) USD-KRW exchange rate suggest that won depreciation may also be limited, which is a positive factor.

As indicated at the ECB monetary policy meeting, the pace of interest rate hikes by central banks worldwide is expected to gradually moderate. Considering that the market is entering a phase focusing more on macroeconomic movements rather than the volatility of large tech stocks, a rebound buying sentiment may continue, limiting the downside.

Jiyoung Han, Researcher at Kiwoom Securities: "KOSPI expected to show weak trend... sectoral differentiation based on earnings to appear"

On the 28th, the domestic stock market is expected to show a weak trend due to the sharp decline in the Nasdaq following poor earnings from U.S. big tech companies, cautious sentiment ahead of the Bank of Japan (BOJ) monetary policy meeting, despite expectations of policy pace moderation. However, as the domestic earnings season is currently underway, sector and stock differentiation based on individual earnings issues is expected to continue.

Amazon’s after-hours stock price has plunged more than 10% due to its main businesses such as cloud and subscription services missing market revenue forecasts and a fourth-quarter guidance lower than expected, which is expected to negatively affect overall domestic investor sentiment.

While the baseline scenario assumes continued tightening by central banks, there appears to be growing concerns about high-intensity tightening even among major central banks such as the Federal Reserve (Fed) and ECB. Given recent shifts in the Fed’s tone, it is judged appropriate for market participants to keep the possibility of a moderation in tightening pace open and respond accordingly.