[MarketING] Rising Profit-Taking Desire Hampers KOSPI's Leap Beyond 2600

KOSPI Declines for Second Day
Profit-Taking After Recent Gains Weighs on Index

The KOSPI has been on a downward trend for the second consecutive day. Profit-taking selling following recent gains appears to be holding back the KOSPI, which is on the verge of recovering the 2600 level. With the debt ceiling issue, which had been affecting the stock market, entering its final stages, the market is expected to respond more sensitively to monetary policy and economic slowdown concerns ahead of the June U.S. Federal Open Market Committee (FOMC) meeting.

KOSPI Falls for Two Consecutive Days

As of 10:25 a.m. on the 1st, the KOSPI was at 2,570.98, down 6.14 points (0.24%) from the previous day. The KOSDAQ rose 3.19 points (0.37%) to 860.13. The KOSDAQ successfully reversed its initial decline to rise, but the KOSPI, after turning upward, fell back into a downward trend.

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The decline appears to be influenced by the U.S. stock market's weakness due to profit-taking selling in AI-related tech stocks such as Nvidia. On the 31st (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.41%, the S&P 500 dropped 0.61%, and the Nasdaq declined 0.63% compared to the previous day.

Na Jung-hwan, a researcher at NH Investment & Securities, analyzed, "The recent profit-taking selling in tech stocks that had been strong due to AI industry expectations led to the three major New York indices closing lower. Nvidia (down 5.7%) and AMD (down 5.6%) saw significant price drops, causing the Philadelphia Semiconductor Index to fall 2.7%."

Accordingly, Samsung Electronics and SK Hynix were down 0.42% and 0.92%, respectively, on the day. Seo Sang-young, a researcher at Mirae Asset Securities, explained, "The U.S. stock market's decline, reflecting recession concerns and profit-taking selling after recent gains, is a burden on the domestic market. In particular, attention should be paid to the fact that Micron did not raise its guidance, Hewlett-Packard's weak sales, and Ambarella's poor earnings, which are negative factors for the semiconductor sector and may increase the desire for profit-taking."

With the debt ceiling negotiations nearing resolution, the stock market is expected to be influenced by variables such as monetary policy and economic slowdown concerns. Han Ji-young, a researcher at Kiwoom Securities, said, "The debt ceiling increase bill passed the House Rules Committee and is likely to pass the House vote, reducing political uncertainty. This could stimulate risk appetite, but the market is expected to continue to coexist with caution regarding existing macroeconomic variables such as Federal Reserve tightening and the economy."

Market Attention on Interest Rate Path to Increase Ahead of FOMC

The market currently expects the June FOMC to hold rates steady. According to the CME FedWatch tool, the probability of a rate hold in June jumped sharply from the previous day's 33% range to the 72% range. Conversely, the probability of an additional 0.25 percentage point hike dropped from the 65% range to the 27% range.

Market attention is focused on the June FOMC, the last major event of the first half of the year and one that will influence the stock market direction in the second half. Among Fed officials, opinions on the direction of interest rates are divided. Since mid-May, hawkish figures such as James Bullard, President of the Federal Reserve Bank of St. Louis, have emphasized the need for further hikes, but Philip Jefferson, nominated as the next Fed Vice Chair, and Patrick Harker, President of the Philadelphia Fed, expressed the view that skipping a rate hike in June would be appropriate.

One researcher noted, "The fact that Jefferson and Harker used the term 'skipping' rather than 'pausing' or 'ending' suggests that even if rates are held steady in June, the possibility of hikes remains open in subsequent meetings. While this could trigger a market correction that had priced in the end of Fed tightening, the Beige Book released the previous day mentioned slowing employment growth in most regions, increased loan delinquencies in some areas, moderate wage growth, and easing inflation, indicating limited room for further Fed hikes."

There is a low likelihood that tightening concerns will materialize this month. Labor Gil, a researcher at Shinhan Investment Corp., said, "The Fed does not see an immediate need for further rate hikes amid uncertainty about the real economy impact of tighter lending standards. Since there has not been enough time to confirm data to justify rushing tightening, the likelihood of tightening concerns materializing in June is low."