[Weekly Market Outlook] First FOMC and Earnings of the Year... KOSPI Watching Closely

Blackout Period Ahead of FOMC... Closely Watching Economic Indicators
US MS, Apple, Tesla, and Korea's Hyundai Motor, EcoPro BM Earnings Announcements

[Asia Economy Reporter Lee Seon-ae] The domestic stock market this week (January 25-27), following the Lunar New Year holiday, is expected to form a box range as it closely monitors major corporate earnings announcements and real economic indicators ahead of the U.S. Federal Open Market Committee (FOMC) meeting scheduled at the end of this month.

This week marks the blackout period during which Federal Reserve (Fed) officials are prohibited from speaking ahead of the first FOMC meeting of the year (January 31-February 1). Ji-young Han, a researcher at Kiwoom Securities, said, "As we enter the blackout period before the February FOMC, when Fed officials are barred from speaking, discussions about interest rate cuts within the year?a concern for the market?will likely be postponed until after February." She added, "Until the February FOMC, issues related to the Fed will take a backseat, and the key factors determining the stock market's direction will be economic and earnings sluggishness." She further forecasted, "The KOSPI index is expected to move within the range of 2330 to 2450 as the market reacts sensitively to major corporate earnings announcements and economic indicators."

Sensitivity to economic indicators such as the U.S. fourth-quarter GDP and December Personal Consumption Expenditures (PCE), which will be announced on January 26-27, is expected to increase. Hee-chan Park, head of the Global Asset Allocation Team at Mirae Asset Securities, said, "The U.S. fourth-quarter GDP is expected to show annualized growth of around 2% compared to the previous quarter, but domestic demand likely was not very active." He added, "The December core durable goods orders (to be announced on the 26th) are expected to indicate stagnation, suggesting weak corporate investment sentiment."

[Image source=Yonhap News]

The inflation indicator, December PCE, will also be announced. Nam-jung Moon, a researcher at Daishin Securities, said, "The expected figures for December PCE and core PCE are 5.0% and 4.4%, respectively, down from 5.5% and 4.7% in the previous month," adding, "This will reaffirm the slowdown in inflation similar to the December Consumer Price Index (CPI)." Previously, the December CPI rose 6.5% year-on-year, marking the smallest increase in 14 months since October 2021.

Researcher Moon noted, "The U.S. fourth-quarter GDP and December PCE results, released ahead of the FOMC, will solidify expectations of a baby step (a 0.25 percentage point increase in the benchmark interest rate) and will be interpreted as a combination of slowing growth and easing inflation, which will help increase the stock market's downside resilience."

South Korea's fourth-quarter GDP will also be announced this week. The Bank of Korea will release the preliminary GDP figures for the fourth quarter of last year on the 26th. South Korea's GDP is expected to have decreased by 0.2% quarter-on-quarter in the fourth quarter, marking the first quarterly contraction since the second quarter of 2020. Kyu-yeon Jeon, an economist at Hana Securities, said, "Year-end service consumption recovery was weak, and private consumption likely remained sluggish due to the impact of interest rate hikes." He added, "Corporate facility investment plans are also declining, and the trade balance continues to show a large deficit."

Corporate earnings announcements are also a factor that could increase volatility. Experts expect major companies to report generally weak earnings, making it difficult for the index to rise further. Earnings reports from major U.S. big tech companies such as Microsoft (MS), Apple, and Tesla, as well as domestic key companies like Hyundai Motor and EcoPro BM, are scheduled.

Young-hwan Kim, a researcher at NH Investment & Securities, said, "Over the past two weeks, the operating profit forecasts for KOSPI companies in the fourth quarter of last year have been revised downward by 6.6%, and the first-quarter forecasts for this year have also been lowered by 6.8%. Concerns about earnings forecasts are being reflected not only in this season but also in this year's outlook," predicting that the market will react sensitively to earnings announcements. Kyung-min Lee, a researcher at Daishin Securities, also said, "As earnings forecasts are further revised downward, it will burden the stock market and increase concerns about a recession." He added, "With upcoming events such as SK Hynix's conference call and the FOMC meeting next week, which will verify whether the market's expectations so far materialize, caution is expected to rise."