[Good Morning Stock Market] US Stocks Focused on 'Disinflation', Attention on AI-Related Stocks

Positive Interpretation of Powell's Speech, Nasdaq Rises 1.9%
KOSPI Focuses on Foreign Investor Supply Improvement

[Asia Economy Reporter Minji Lee] U.S. stocks cheered as Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), once again mentioned ‘disinflation.’ The Nasdaq index rose 1.9%, and the S&P 500 index increased by 1.29%. Although concerns about interest rate hikes were not entirely alleviated, the market still received Powell’s speech positively. On this day, interest in artificial intelligence (AI) continued in the market, with notable gains in the stock prices of chatbot AI-related companies.

[Image source=Yonhap News]

Sangyoung Seo, Researcher at Mirae Asset Securities: “Focus on Whether Foreign Demand and Supply Improve”

The Korean stock market needs to pay attention to whether foreign investor sentiment can improve, supported by the rise in U.S. stocks. Although Chairman Powell mentioned that this year would be a year of significant inflation decline, drawing positive interpretations from the market, U.S. Treasury yields actually recorded an upward trend.

It is also necessary to consider the significant gap observed the previous day between Chairman Powell and Neel Kashkari, President of the Minneapolis Federal Reserve Bank. While they agreed on the need for disinflation in the service sector, their views on the housing market differed. Powell argued that disinflation in the housing market could appear in the second half of this year, but Kashkari pointed out that the housing market is showing signs of revival, which could make their task more difficult.

By sector, AI-related companies are worth examining. Microsoft announced new AI-based updates for its Bing search engine and Edge browser, while Google unveiled Bard as an AI engine to compete with Microsoft’s ChatGPT. Baidu joined the global AI race by announcing it will launch the conversational chatbot AI ‘Ernie Bot’ next month. In fact, since the beginning of the year, the stock prices of small and medium-sized AI companies listed on the U.S. stock market have risen between 100% and 650%. While selective approaches are necessary considering technological advancement, reality, and future profitability, investor interest in this theme is likely to continue.

Changseop Oh, Researcher at Hyundai Motor Securities: “Global Monetary Tightening to End in the First Half of the Year”

Currently, the prolonged Ukraine crisis and ongoing monetary tightening by major countries are increasing the risk of a recession. The global economy this year is expected to focus on the end of global monetary tightening in the first half.

Emerging markets, which have faced recession concerns since the fourth quarter of last year, have already declared the end of interest rate hikes. Expectations are growing that developed countries will also end rate hikes in the first half. In the U.S., the Federal Open Market Committee (FOMC) unanimously raised rates by 0.25 percentage points in February and slowed monetary tightening for the second consecutive time. In Japan, with the expiration of Bank of Japan Governor Haruhiko Kuroda’s term, Masayoshi Amamiya, Deputy Governor of the Bank of Japan, is being considered as the new governor, raising expectations for dovish monetary policy.

In the U.S., the upper limit of the federal funds rate is expected to end rate hikes at 5.00?5.25%, while Europe’s final rate level is projected to be 3.50?3.75%. In Korea, rate hikes are expected to end at the current level of around 3.5%, making it highly likely that the global monetary tightening trend will conclude around the first half of this year.

A temporary recession is expected during the final stage of global monetary tightening. In particular, the global bond yield decline and dollar weakness that began in the fourth quarter are expected to act as buffers against economic downturns.

Last year, despite economic deterioration, the U.S. and Eurozone recorded inflation rates of 9?10%, resulting in stagflation. Stagflation is a situation where inflation rises during an economic downturn, typically occurring during supply chain crises such as wars. In stagflation, contrary to market expectations, high interest rate policies to curb inflation must be implemented despite economic burdens, which can lead to a recession. However, if global monetary tightening ends in the first half, a rebound in the economic cycle is expected.