[Good Morning Market] US Stock Market Cheers FOMC... KOSPI Starts Up 0.7%

Fed Raises Benchmark Interest Rate by 0.25 Percentage Points... Pace Adjustment
Nasdaq Gains Stand Out Amid 'Dovish' Interpretation

[Asia Economy Reporter Lee Jung-yoon] As the U.S. Federal Reserve (Fed) raised the benchmark interest rate by 0.25 percentage points at the February Federal Open Market Committee (FOMC) meeting as expected, signaling a pace adjustment, the U.S. stock market closed higher across the board.

On the 1st (local time), the Dow Jones Industrial Average rose 6.92 points (0.02%) from the previous close to 34,092.96, the large-cap focused S&P 500 index closed at 4,119.21, up 42.61 points (1.05%), and the Nasdaq index ended the session at 11,816.32, up 231.77 points (2.0%). The increase in the Nasdaq was particularly large as Jerome Powell, Fed Chair, acknowledged a slowdown in inflation during his press conference, which was interpreted dovishly (favoring monetary easing).

[Image source=Yonhap News]

At this year’s first FOMC meeting, the Fed raised the benchmark interest rate by 0.25 percentage points from the previous 4.25?4.5% range to 4.5?4.75%. This followed the December FOMC meeting last year, where the rate hike pace was reduced to 0.5%, indicating a further slowdown in the pace of rate increases.

Chairman Powell stated at the press conference, "There will be no rate cuts this year," and added, "It may take longer than expected to bring down inflation." Despite these remarks, the market viewed the tone as less hawkish (less inclined toward monetary tightening) than expected. Powell said, "We are in the early stages of disinflation," and regarding long-term inflation, he said, "It is trending downward and following the path consistent with the Fed’s plans."

However, Powell also noted, "The job is not completely done," mentioning discussions about raising rates two more times, leaving the door open for additional hikes. The median rate forecast by Fed officials in December last year was 5.00%?5.25%, which is 0.50 percentage points higher than the current level.

With the Fed’s pace adjustment in rate hikes, all sectors in the S&P 500 except energy rose. Technology stocks, which are sensitive to interest rates, rallied. Tesla rose 4.73% from the previous close, AMD and Nvidia increased by 12.63% and 7.20%, respectively. Microsoft (1.99%), Amazon (1.96%), and Meta (2.79%) also closed higher. Conversely, energy stocks struggled due to a decline in international oil prices. ExxonMobil fell 1.09%, and Chevron dropped 1.53%.

Kim Seok-hwan, a researcher at Mirae Asset Securities, forecasted that the domestic stock market would also show an upward trend on the 2nd, as the U.S. market rose mainly in cyclical and growth stocks. He explained, "Especially considering the Philadelphia Semiconductor Index surged more than 5% and despite a sharp drop in semiconductor exports in January, China’s reopening and the government’s commitment to semiconductor development are expected to be positive." Researcher Kim expects the KOSPI to start with an increase of around 0.7%, adding, "Automakers, which released January sales figures, also show positive signs as overseas and export data performed well despite a decline in domestic sales."

Han Ji-young, a researcher at Kiwoom Securities, also predicted that the domestic market would follow the upward trend of the U.S. stock market. Han said, "The fact that the Fed mentioned disinflation for the first time during this tightening cycle triggered market cheers from mid-session onward," and explained, "While the Fed has stated that inflation is declining, this is the first time since last year’s tightening cycle that the term deflation was used." She added, "This suggests that the Fed acknowledges that their tightening has caused demand contraction, leading to price decline pressures mainly on goods."

Han also noted, "After the U.S. market closed, Meta (2.8%) announced solid quarterly earnings and a $40 billion share buyback plan, causing its stock to surge over 18% in after-hours trading, which is expected to positively influence investor sentiment toward domestic growth stocks and share buyback-themed stocks." She added, "Although Korea’s semiconductor exports in January were sluggish and the impact of Samsung Electronics’ artificial production cuts remains, the Philadelphia Semiconductor Index (5.2%) and Micron (3.8%) surged sharply on macroeconomic issues, which is expected to have a short-term positive effect on domestic semiconductor stocks as well."