[MarketING] Stock Market 'Taking a Breather', Searching for Direction

KOSPI Declines for Second Day... Falls to 2540 Level
KOSDAQ Drops Sharply for Second Consecutive Day... Also Loses 880 Level

The KOSPI and KOSDAQ have continued their downward trend for the second consecutive day. Profit-taking following short-term gains and concerns about an economic recession are acting as downward pressures, and it is expected that the market direction will be somewhat determined after reviewing corporate earnings and economic indicators next week.

KOSPI and KOSDAQ Fall for Two Consecutive Days

As of 10:25 a.m. on the 21st, the KOSPI was at 2,543.68, down 19.43 points (0.76%) from the previous day. The KOSDAQ fell 11.35 points (1.28%) to 874.36. The KOSPI dropped to the 2,540 level, and the KOSDAQ fell below the 880 level.

This weakness is interpreted as being influenced by the decline in the U.S. stock market the previous day. On the 19th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.33%, the S&P 500 dropped 0.60%, and the Nasdaq Composite declined 0.80% compared to the previous day.

Concerns about economic slowdown pulled the indices down. The Conference Board's March Leading Economic Index fell 1.2% month-on-month to 108.4 points, underperforming both the previous month (-0.5%) and market expectations (-0.6%). The Conference Board forecasted a recession starting in mid-2023. The Philadelphia Federal Reserve Bank's April manufacturing index for its district was -31.3, also below the previous month (-23.2) and expectations (-19.2). Weekly initial jobless claims exceeded expectations, increasing for the second consecutive week. Last week (April 9?15), initial jobless claims rose by 5,000 to 245,000, surpassing the previous week (240,000) and expectations (240,000). Continuing jobless claims also rose to 1,865,000, exceeding the previous week (1,084,000) and expectations (1,820,000), indicating a possible peak in employment strength.

Sangyoung Seo, a researcher at Mirae Asset Securities, analyzed, "With major economic indicators underperforming and recession concerns rising, government bond yields fell sharply, the dollar's weakness narrowed, and the yen strengthened against the dollar, while gold prices rose. International crude oil, copper, and iron ore prices declined, triggering selling pressure on stock indices and expanding safe-haven asset preference."

Concerns about a U.S. recession are expected to lead to worries about sluggish Korean exports, affecting investment sentiment. Researcher Seo said, "The U.S. stock market's decline reflecting recession concerns burdens the Korean stock market. Especially, the poor performance of major U.S. economic indicators increases the likelihood of a recession in the second half of this year, which could prolong the slowdown in Korean exports, acting as a factor that dampens overall investment sentiment." He added, "This will negatively impact foreign investor demand."

In fact, Korean export slowdown continues. On this day, the Korea Customs Service announced that export value (customs clearance basis, provisional) from April 1 to 20 was $32.37 billion (approximately 42.9 trillion KRW), down 11.0% compared to the same period last year. Exports have remained negative for seven consecutive months from October last year to April 20 this year. Imports exceeded exports from April 1 to 20, resulting in a trade deficit of $4.139 billion. The trade deficit has continued for 14 consecutive months from March last year to April 20 this year.

Taking a Breather Amid Rising Pressure... Focus on U.S. Tech Earnings and Economic Indicators Next Week

With increased pressure from short-term gains and lack of momentum, the market is taking a breather. After reviewing U.S. tech earnings and major countries' GDP and other economic indicators next week, the market direction is expected to become clearer.

Yujun Choi, a researcher at Shinhan Investment Corp., said, "The domestic market faced technical resistance around the high 2,500s on the KOSPI amid lack of momentum and consecutive gains, leading to a slowdown mainly in large-cap stocks. The rise in the won-dollar exchange rate was also a key factor in this slowdown." He added, "The KOSDAQ continued its rally early in the week, but profit-taking occurred mainly in stocks with high credit loan ratios, led by the secondary battery value chain."

The concentration of earnings announcements from major U.S. companies, including tech stocks, next week also stimulated a wait-and-see sentiment. In the U.S., big tech companies such as Microsoft, Alphabet, Amazon, and Intel are scheduled to report earnings. In Korea, automakers and leading secondary battery and display companies such as Hyundai Motor, POSCO Holdings, POSCO Future M, Samsung SDI, LG Chem, and LG Display will announce their results. Researcher Choi explained, "U.S. tech earnings are important because they are the upstream industry of Korea's semiconductor sector. Due to the semiconductor industry's leading nature, the evaluation of future business conditions is more important than the numbers, which will be an event testing the credibility of the semiconductor bottoming theory." He also said, "Many Korean companies will announce earnings on the 26th and 27th. Expectations for first-quarter results remain high, so there is a possibility of earnings shocks, but what needs to be confirmed during this earnings season is whether the perception of a profit bottom is strengthening."

Additionally, first-quarter GDP announcements are scheduled. Korea will release its data on the 25th, the U.S. on the 27th, and the Eurozone on the 28th. Younghwan Kim, a researcher at NH Investment & Securities, said, "Recently, the financial market has been optimistic about the U.S. Federal Reserve's monetary policy, but if the Fed's stance differs from market expectations, it could act as a noise factor in the stock market. Therefore, it is necessary to pay attention to the U.S. economy (first-quarter GDP announcement on the 27th) and inflation (March PCE inflation announcement on the 28th)."