[Good Morning Stock Market] US Stocks Weaken Ahead of Debt Ceiling Vote... KOSPI Expected to Start Lower

Despite Predominant Rate Hold Outlook, US Stock Market Declines
"Expected 0.5% Drop Followed by Selling Absorption Process"

Ahead of the vote on the debt ceiling agreement, the U.S. stock market closed lower on the 31st (local time). The Dow Jones Industrial Average fell 134.51 points (0.41%) to 32,908.27, the large-cap-focused S&P 500 dropped 25.69 points (0.61%) to 4,179.83, and the tech-heavy Nasdaq declined 82.14 points (0.63%) to close at 12,935.29.

Image source=EPA·Yonhap News

Investors focused on the House of Representatives' vote on the debt ceiling agreement and remarks from Federal Reserve (Fed) officials. The debt ceiling agreement passed the House Rules Committee the previous day, clearing the first hurdle in Congress. Votes in both the House and Senate must take place ahead of the federal government's cash exhaustion date on the 5th.

Additionally, the market increasingly expects the Federal Open Market Committee (FOMC) to hold interest rates steady in June. According to the CME FedWatch tool, federal funds futures currently price in about a 72% chance that the Fed will keep rates unchanged in June.

Fed officials have made comments suggesting a pause in rate hikes in June. Philip Jefferson, nominated as Fed Vice Chair, stated, "Skipping a rate hike at the next meeting would allow the committee to see more data before deciding whether to further tighten policy."

Patrick Harker, President of the Philadelphia Federal Reserve Bank, also said, "We are really thinking about skipping (a rate hike). We need to reach a point where we believe monetary policy is restrictive, and even if not right now, we are close to that point."

The domestic stock market is expected to open lower on the 1st. The recent decline in U.S. stocks, reflecting recession concerns and profit-taking after recent gains, is likely to weigh on the market. Negative factors affecting the semiconductor sector, such as Micron not raising its guidance, could also have an adverse impact. Seosangyoung, head of the Media Content Division at Mirae Asset Securities, noted, "Although Intel's rise limited the Philadelphia Semiconductor Index's decline to 2.71%, attention should be paid to the increased desire for profit-taking. The contraction in China's economy and signs of slowdown in the manufacturing sector in the U.S., despite solid employment, also pose burdens on the domestic market."

He added, "Furthermore, Korea's exports, expected to remain in negative territory year-on-year as announced that day, could pressure corporate earnings and significantly dampen overall investor sentiment. The domestic market is expected to start with a decline of around 0.5%, followed by a process of digesting sell-off pressure."

Han Jiyoung, a researcher at Kiwoom Securities, said, "Despite expectations for a debt ceiling resolution, the Philadelphia Semiconductor Index, including Nvidia, showed weakness due to profit-taking. The domestic market is expected to open under pressure from external risks such as uncertainties in the U.S. and Chinese economies." She added, "Korea's May export results are also expected to influence the domestic market during the session. Depending on export performance in key sectors such as semiconductors, automobiles, and secondary batteries, stock price differentiation among these sectors is likely to occur."