[Good Morning Stock Market] Digesting FOMC Results... Semiconductor Stocks Likely to Show Limited Gains

FOMC Decides to Hold Interest Rates Steady for 11th Time
"Dot Plot Rose but Stock Market Impact Limited" Outlook
Individual Earnings Market Expected to Develop After FOMC Results Reflected

On the 15th, the domestic stock market is expected to show a limited upward trend as it digests the results of the June Federal Open Market Committee (FOMC) meeting. With no major external events scheduled until next month, the global stock market is anticipated to fluctuate based on individual corporate earnings.

Han Ji-young, Kiwoom Securities Researcher: “Be cautious of intraday volatility... There may be bargain buying movements in secondary battery stocks”

[Image source=Yonhap News]

On the 14th (local time), the U.S. stock market fluctuated as it absorbed the June FOMC results. As expected, interest rates were held steady, but the dot plot raised the year-end rate forecast, reflecting the possibility of two more rate hikes within the year, which led to intraday declines in the stock market. However, in the latter part of the session, Federal Reserve Chairman Powell’s remarks were interpreted as less hawkish, reducing the extent of the decline. The Dow Jones Industrial Average fell by 0.68%, while the S&P 500 and Nasdaq rose by 0.08% and 0.39%, respectively.

Although uncertainty around Fed policy has increased, the impact on the stock market is expected to be limited. The market remains open to a possible rate hike in July, but considering the downward trend in inflation and the credit environment, a rate increase decision is unlikely.

The domestic stock market is expected to show a limited upward trend, reflecting the June FOMC results and the rise in U.S. AI and semiconductor stocks. However, interpretations of the FOMC results may vary among market participants, potentially increasing intraday volatility. It is also important to note that following the U.S. government's approval of a Chinese battery plant, KOSDAQ secondary battery stocks fell sharply, which could attract bargain buying.

Meanwhile, after digesting the June FOMC event, the stock market is expected to move based on individual corporate earnings for the time being. With virtually no external events until early July and the second-quarter earnings season preview phase starting next week, a differentiated market by sector, centered on semiconductor stocks, is likely to unfold.

Jeon Gyu-yeon, Hana Securities Researcher: “No rate cuts expected within the year”

At the June FOMC, the Federal Reserve held the target range for the policy rate steady at 5.00%?5.25%. This was the first pause after ten consecutive hikes since March last year.

The dot plot hinted at the possibility of future hawkish tightening. This pause was seen as a ‘temporary halt’ in rate hikes. To decide on further policy tightening, the Fed is expected to consider the cumulative effects of the restrictive monetary policy, the lagged impact of monetary policy on the economy and inflation, and changes in the economy and financial conditions. According to the dot plot, only two members forecast rates to remain at the current level by year-end, while the other 16 members anticipated additional rate hikes. The economic outlook was positive, with the U.S. GDP growth forecast for Q4 raised from 0.4% to 1%, and the unemployment rate forecast lowered from 4.5% to 4.1%.

However, the current rate level is expected to continue through the end of the year. Despite the upward revision in the dot plot, the emphasis should be on no hikes within the year rather than on rate increases. In the press conference, Fed Chair Powell stated that no decisions had been made regarding the July FOMC and that any rate hike decision would be based on incoming data at that time. He also mentioned that if credit tightening accelerates, it would be factored into rate decisions, showing a somewhat more dovish stance compared to the dot plot. In conclusion, while the Fed aims to maintain a hawkish tone due to upside inflation risks, it is expected to adjust the pace of rate hikes through a temporary pause rather than additional increases.