[MarketING] Growing Desire for Profit-Taking Amid Uncertainty from the US

KOSPI Declines After 8 Days
Short-Term Profit-Taking Triggered by US-Originated Uncertainty

The KOSPI is showing a downward trend for the first time in 8 days. Concerns over a slowdown in the U.S. economy and uncertainties surrounding the debt ceiling negotiations are expected to increase profit-taking desires following the recent continuous rise.

KOSPI Declines for the First Time in 8 Days... Slightly Weak

As of 10:15 a.m. on the 24th, the KOSPI stood at 2,561.81, down 5.74 points (0.22%) from the previous day. The KOSDAQ fell 5.94 points (0.69%) to 853.22.

[Image source=Yonhap News]

This weakness is attributed to the possibility of delays in debt ceiling negotiations and concerns over economic contraction due to weakening U.S. manufacturing indicators, which caused the U.S. stock market to decline. On the 23rd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.69%, the S&P 500 dropped 1.12%, and the Nasdaq declined 1.26% compared to the previous day.

Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "The U.S. stock market started lower due to growing concerns about economic contraction following weakening manufacturing indicators, and the possibility of negotiation delays increased as some Republican lawmakers questioned the June 1 deadline, acting as a factor for the decline. Ultimately, the market reacted sensitively to various negative factors and closed lower as profit-taking from the recent rise emerged."

The S&P Global U.S. Manufacturing Purchasing Managers' Index (PMI) for May recorded 48.5, falling short of both last month's 50.2 and the expected 50.0. In contrast, the Services PMI improved to 55.1, surpassing last month's 53.6 and the expected 52.6, marking the highest level in 13 months.

The Richmond Federal Reserve Bank manufacturing index for May recorded -15, below last month's -10 and the expected -8.

Researcher Seo analyzed, "Overall, the service sector has greatly improved due to a surge in travel and leisure demand, while manufacturing is facing difficulties caused by oversupply. The May New York Fed manufacturing index, released on the 15th, also sharply declined from 10.8 last month to -31.8, indicating continued weakness in regional Fed manufacturing indicators, which fuels concerns about economic slowdown." He added, "Ultimately, the U.S. economy is continuing to slow, and even if the debt ceiling negotiations are resolved, the resulting fiscal spending cuts could further stimulate concerns about economic slowdown. Therefore, attention should be paid more to the scale of spending cuts than to the negotiation outcome."

Meanwhile, as June 1?the 'X-date' Janet Yellen, U.S. Treasury Secretary, indicated as the date when the federal government's cash reserves will run out?approaches, noise around the debt ceiling is intensifying. On the previous day, Republican lawmakers expressed doubts about the June 1 deadline to avoid default, raising concerns about negotiation delays and contributing to increased market volatility.

Jiyoung Han, a researcher at Kiwoom Securities, stated, "Considering historical debt ceiling cases and probabilities, it is important to note that an agreement after some difficulties before the X-date is likely. Although uncertainty about the debt ceiling may become more provocative toward the end of the month, it is appropriate to treat it as noise and adopt a strategy of enduring volatility rather than reducing stock positions."

Increasing Desire for Profit-Taking

With the KOSPI rising for 7 consecutive days and the KOSDAQ for 6 consecutive days, caution is needed as profit-taking desires may expand due to uncertainties originating from the U.S.

Researcher Han said, "It is necessary to be aware of the possibility that short-term profit-taking volumes may be released in the domestic stock market, using the weakness in the U.S. stock market as an excuse. Considering this, the overall index trend is expected to show increased downward pressure, with stock prices differentiating according to supply and demand changes among major domestic large sectors and stocks such as secondary batteries, semiconductors, automobiles, and shipbuilding."

Researcher Seo also explained, "The profit-taking selling triggered by concerns over delays in debt ceiling negotiations in the U.S. stock market the previous day is a burden on the Korean stock market. The Korean stock market has also risen for 7 consecutive trading days until the previous day, so the desire for profit-taking is high. It is particularly noteworthy that selling has emerged mainly in stocks that have experienced significant gains."