[MarketING] Stock Market Unable to Find Direction Amid Material and Supply Gaps

KOSPI Fluctuates in Narrow Range
Rotation Continues Amid Material and Supply-Demand Gaps

[Image source=Yonhap News]

The KOSPI is fluctuating around the flat line in early trading. While the previous day’s weakness in the U.S. stock market acts as a burden, factors such as a weaker dollar and increased downward pressure on U.S. inflation are positive influences, causing the market to lack a clear direction. It is expected that the rotation of stocks will continue due to a lack of new catalysts and supply-demand gaps.

KOSPI Fluctuates Around Flat Line

As of 10:25 a.m. on the 29th, the KOSPI was up 3.09 points (0.13%) from the previous day, standing at 2438.03. The KOSDAQ rose 4.84 points (0.58%) to 838.35.

With mixed factors such as the previous day’s U.S. stock market weakness and easing inflationary pressures, the market is fluctuating around the flat line without a clear direction. Ji-Young Han, a researcher at Kiwoom Securities, said, "The U.S. stock market decline is influenced by profit-taking in U.S. growth stocks and increasing uncertainty about economic prospects, which is expected to exert limited downward pressure."

The U.S. stock market closed lower the previous day. On the 28th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.12%, the S&P 500 dropped 0.16%, and the Nasdaq declined 0.45%. The U.S. market fell due to concerns about slowing earnings ahead of the earnings season, profit-taking, and rising Treasury yields. Jung-Hwan Na, a researcher at NH Investment & Securities, explained, "The decline in the U.S. stock market was due to profit-taking amid concerns about weak earnings ahead of the earnings season. The continued rise in U.S. Treasury yields also contributed to selling pressure on tech stocks." As banking risks somewhat eased, the U.S. 2-year Treasury yield again surpassed 4%.

Inflationary pressures appear to be easing. The January S&P CoreLogic Case-Shiller Home Price Index released the previous day showed a 3.8% increase year-over-year (expected 5.6% in December). This is lower than the previous month’s 5.6% increase, marking the seventh consecutive month of decline. According to a housing market survey by the Federal Reserve Bank of New York, home prices are expected to rise by only 2.6% over the next year, down from 7.0% in February last year, the slowest pace since the survey began in 2014. Sang-Young Seo, a researcher at Mirae Asset Securities, said, "Especially, the expected change in rent was reported at an 8.2% increase, significantly lower than 11.5% in February last year. Although still high, the rate of increase is steadily declining. This change suggests that the consumer price index centered on housing costs may slow sharply in the future, raising expectations for the end of the Federal Reserve’s rate hike cycle."

The easing of inflationary pressures and a weaker dollar are expected to have a positive impact on the domestic stock market. Researcher Seo said, "Expectations for won appreciation due to a weaker dollar, and increased downward pressure on inflation from slowing U.S. housing rents, along with expectations for the Fed to end its rate hike cycle, are positive factors." On this day, the won-dollar exchange rate in the Seoul foreign exchange market opened at 1296.6 won, down 2.2 won from the previous day.

Rotation of Stocks Expected to Continue Amid Catalyst and Supply-Demand Gaps

It is expected that the rotation of stocks will continue due to a lack of catalysts and supply-demand gaps.

Yoo-Jun Choi, a researcher at Shinhan Investment Corp., said, "The KOSPI’s momentum is slowing around the low 2400s, and although the KOSDAQ is hitting new highs for the year, selling pressure is evident, so it is too early to judge a trend reversal in the stock market. The combination of catalyst and supply-demand gaps will extend the rotation of stocks."

With growing concerns about a recession following the Silicon Valley Bank (SVB) incident, the market is expected to become more sensitive to economic indicators and corporate earnings. Researcher Han said, "In the January-February market, confidence in economic outlooks such as 'Goldilocks' (an ideal economy that is neither too hot nor too cold) and 'no landing' (a soft landing without recession) was high, but the SVB incident appears to have set back those expectations. Going forward, the key will be whether the economy follows a soft landing or a hard landing rather than a no landing." He added, "This is directly related to the timing of a turnaround in corporate earnings forecasts. As time passes, market sensitivity to Fed tightening and banking sector risks will decrease, while sensitivity to fundamentals such as economic indicators and corporate earnings will increase."