[Good Morning Stock Market] "US Economic Slowdown Highlighted... Foreign Investors' Supply Red Light"

On the 4th (local time), the U.S. stock market closed lower across all three major indices as concerns about a potential economic recession were highlighted due to weak economic indicators. The Dow Jones Industrial Average fell 0.59% (198.77 points) to close at 33,402.38. The Standard & Poor's (S&P) 500 index dropped 0.58% (23.91 points) to 4,100.60, while the Nasdaq declined 0.52% (63.13 points) to 12,126.33.

[Image source=Reuters Yonhap News]

In particular, sectors directly affected by the economy, such as financials and industrials, showed weakness. Additionally, concerns expressed by JP Morgan CEO Jeremy Dimon in his annual report, stating that while the current economy is fairly healthy, a storm is coming, appeared to weigh on investor sentiment. Large banks like Wells Fargo (-2.41%) and regional banks such as First Republic (-5.55%) fell amid worries that banking risks could persist long-term, along with the possibility of increased provisions due to slowing economic indicators and the resulting potential profit declines. Caterpillar (-5.40%) and equipment rental company United Rentals (-7.70%) declined on fears of reduced demand due to a recession. US Steel (-5.73%) and Micron (-3.93%) also continued to fall.

The U.S. stock market's decline, driven by weak economic data and a slowdown in job postings raising recession concerns, is expected to weigh on the Korean stock market as well. Notably, the Russell 2000 index, a small- and mid-cap index, dropped sharply by 1.81%, and the Dow Transportation Index fell 1.79%, while the Philadelphia Semiconductor Index declined 1.81%. These relatively large drops in indices that influence the Korean market are also factors dampening investor sentiment. Although a weaker dollar and lower Treasury yields are positive for tech stocks, this is also a phenomenon linked to recession concerns, so the impact is expected to be limited.

Seosangyoung, Head of Media Content Division at Mirae Asset Securities: “KOSPI to Start Down Around 0.3%”

The decline in the U.S. stock market due to economic concerns is also a burden on the Korean stock market. In particular, the relatively large drops in indices such as the Russell 2000, Dow Transportation Index, and Philadelphia Semiconductor Index, which affect the Korean market, are expected to negatively impact investor sentiment.

Until now, despite concerns about a global economic slowdown, the Korean stock market has shown resilience due to positive factors in individual companies. However, the highlighted economic slowdown issue in the U.S. market poses a challenge for foreign capital flows. Although a weaker dollar and lower Treasury yields are positive for tech stocks, these are also effects of recession concerns, so the positive impact is limited. Considering this, the Korean stock market is expected to start slightly lower and then undergo a process of absorbing selling pressure.

[Image source=EPA Yonhap News]

Han Ji-young, Researcher at Kiwoom Securities: “Caution on Increased Volatility in KOSDAQ Stock Prices”

During the first quarter, the surge in service sector jobs in U.S. employment data tended to act as a negative factor for the stock market due to its interaction with the Federal Reserve's (Fed) tightening measures, but this effect seems to be fading. For example, the February Job Openings and Labor Turnover Survey (JOLTS) released on the 4th (local time) showed job openings at 9.93 million, below both the previous month (10.56 million) and expectations (10.40 million), dropping below 10 million for the first time in about 21 months. This suggests that the strong employment market, which had justified the Fed's aggressive rate hikes to control inflation, is weakening.

Furthermore, as seen in JP Morgan CEO Dimon's recent comment that “although different from the 2008 financial crisis, the banking sector crisis following the Silicon Valley Bank (SVB) incident is not over yet,” it is necessary to remain open to the possibility of side effects from the Fed's cumulative tightening measures emerging in the future.

Considering the trend of employment market slowdown, the potential emergence of additional banking crises, and the growing market consensus on policy shifts, it is appropriate to assume a scenario where the Fed's policy direction becomes less hawkish through upcoming Federal Open Market Committee (FOMC) meetings when responding to the stock market.

Today, the domestic stock market is expected to open under downward pressure due to macroeconomic concerns such as the U.S. stock market's weakness amid recession fears and early caution ahead of the U.S. employment report on the 7th. While sector rotation is expected during the trading session, attention will focus on whether, as experienced after midday yesterday, some outflows from the secondary battery sector and a distribution of funds to other sectors like biotech will occur. It is also notable that the KOSDAQ's credit balance has recently surpassed that of the KOSPI. Since most of the recent surge in KOSDAQ credit balances has been led by secondary battery-related stocks in IT electronics and chemicals within KOSDAQ, caution is needed regarding increased price volatility in these sectors caused by leveraged trading.