[Good Morning Market] "Fed Big Step Concerns Eased... KOSPI Expected to Start Higher"

Despite Pressure from Sharp Rise in US 10-Year Treasury Yields
Expectations for China’s Economic Recovery
Increased Attractiveness of Materials and Industrials Sectors

On the 3rd, the domestic stock market is expected to start with an increase of around 0.7% and maintain a steady performance. This is likely influenced by the rise in major U.S. New York stock indices, which closed higher following remarks from Federal Reserve (Fed) officials alleviating concerns about a big rate hike.

Sangyoung Seo, a researcher at Mirae Asset Securities, analyzed, “The U.S. stock market showed resilience as it rebounded after an early decline despite sharp interest rate hikes and a strong dollar, which is positive. Additionally, despite the strong dollar, the continued decline in the KRW-USD exchange rate and the resulting stability in foreign investor demand due to the won’s strength are also favorable.”

On the 2nd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, focused on blue-chip stocks, closed at 33,003.57, up 1.05% (341.73 points) from the previous trading day. The large-cap Standard & Poor’s (S&P) 500 index finished at 3,981.35, rising 0.76% (29.96 points). The tech-heavy Nasdaq index also increased by 0.73% (83.50 points) to 11,462.98.

[Image source=Yonhap News]

Among the 11 sectors of the S&P 500 index, financials (-0.53%) and consumer discretionary (-0.32%) declined, while utilities (1.82%), technology (1.26%), real estate (1.22%), consumer staples (1.21%), and industrials (1.20%) rose.

Investors closely monitored movements in government bond yields, economic indicators, and corporate earnings. Rising interest rates initially dragged the stock market down. Notably, since last year, there has been an inverse correlation between the 10-year Treasury yield and the S&P 500 index; when the 10-year yield rises, stock prices tend to fall.

The previous day, despite the burden of weak U.S. stock markets and a sharp rise in the U.S. 10-year Treasury yield during the domestic market’s holiday, the market showed strength supported by expectations of China’s economic recovery and a shift to net buying by foreign investors. The surprise in China’s manufacturing Purchasing Managers’ Index (PMI) led to strength in the chemical, steel, and shipping sectors, as well as continued gains in cosmetics and apparel sectors fueled by consumer optimism. However, some airline and leisure stocks saw profit-taking, resulting in sectoral differentiation.

AI and secondary battery-related stocks were affected by Elon Musk’s remarks at Tesla Investor Day that AI would not be useful for Tesla production. Disappointment over low-cost electric vehicles led to profit-taking in these stocks. However, within the secondary battery sector, stocks related to used batteries expected to benefit from the European Critical Raw Materials Act (CRMA) showed strength, indicating that related momentum is likely to continue into March.

Jiyoung Han, a researcher at Kiwoom Securities, explained, “This is a period where the attractiveness of materials and industrial sectors is rising due to the increase in raw material prices that move in tandem with China’s economy, while Chinese consumer stocks are better approached from a short-term trading perspective.” She added, “Furthermore, the recent sharp rise in the exchange rate and stabilization of oil prices create a favorable environment for domestic exports. Since expectations for an export turnaround are forming from the January low, it is necessary to pay attention to export stocks such as display, automobile, and transportation sectors.”