[Good Morning Stock Market] Watch for Profit-Taking Amid US Debt Ceiling Negotiations

‘Parallel Lines’ Debt Ceiling Negotiations Resume on 22nd
Semiconductor Stocks Fall Last Friday on Profit-Taking
This Week's Focus: PCE Price Index and Nvidia Earnings Announcement

The key point to watch this week is the U.S. debt ceiling negotiations. Since U.S. President Joe Biden has decided to shorten his overseas trip and return on the 22nd to resume the stalled negotiations, it remains to be seen whether progress can be made in the discussions.

[Image source=Yonhap News]

Seo Sang-young, Head of Media Content Division at Mirae Asset Securities: “Focus on Foreign Demand for Semiconductor Stocks”

Last Friday, the U.S. stock market declined due to uncertainties related to the debt ceiling negotiations. The Dow Jones Industrial Average fell by 0.33%, and the Nasdaq Composite dropped by 0.24%. Although Federal Reserve (Fed) Chair Jerome Powell hinted at holding interest rates steady, it did not change investors' sentiment. It is expected that the domestic stock market will be affected by the anxiety surrounding the debt ceiling negotiations.

Notably, the semiconductor sector, which had recently driven the stock market's rise, declined. The release of profit-taking orders was negative. AMAT fell about 2.3%, with mentions that major consumer electronics markets, including PCs and smartphones, are showing weakness, which dragged down the stock price. On the same day, the Philadelphia Semiconductor Index dropped 0.62%, and the Russell 2000 Index fell 0.62%.

Considering these points, there is a high possibility of profit-taking orders emerging in the semiconductor sector in the domestic stock market. Recently, foreign investors have actively purchased semiconductor stocks due to expectations of a bottom in the semiconductor industry, positive news about DDR5 inventory, and anticipation of the AI industry. Last Friday, foreign investors net bought stocks worth 558 billion KRW in the domestic market, of which 530 billion KRW was Samsung Electronics.

Jo Jun-gi, Researcher at SK Securities: “Anxiety Will Persist Until Negotiations Are Settled”

Both domestic and overseas stock markets are expected to react sensitively to the debt ceiling issue, similar to last week. Considering the problems that would arise if a default occurs, the possibility of an actual default is extremely limited. However, since the directions of the two parties are sharply divided, it is highly likely that negotiations will drag on until the last moment. Furthermore, even if an agreement is reached, the stock market is unlikely to show a strong rally in terms of resolving uncertainty, as last week's strong market rise had already priced in much of the expectation for a deal.

Attention should also be paid to upcoming U.S. economic indicators that could influence further interest rate hikes. Fed Chair Jerome Powell stated that there is no need to raise rates further based on stress in the banking sector, lowering the probability of an additional hike at the June Federal Open Market Committee (FOMC) meeting from 36% to the 10% range. However, some officials, including James Bullard, President of the Federal Reserve Bank of St. Louis, have expressed opposing views, saying that a rate hold cannot be justified. Ultimately, upcoming data will be crucial, and attention should be given to the Personal Consumption Expenditures (PCE) price index scheduled for release on the 26th, as well as May inflation and employment figures.

Companies scheduled to announce earnings this week include Nvidia, Costco, and Lowe's. If Nvidia provides a positive outlook in its earnings report, it is expected to strengthen investment sentiment in semiconductor stocks. Recently, retailers that have finished reporting earnings stated that high-income consumers are seeking cheaper products and reducing consumption of expensive items; it will be worth watching whether similar comments are made this time as well.