[Good Morning Stock Market] US Stocks Fall on 'Hawkish' Powell... KOSPI Expected to Start Lower

Nasdaq Falls 1.2% as Chairman Powell Makes Hawkish Remarks
"Prepare for Increased Volatility in Semiconductor and Secondary Battery Stocks"

On the 21st (local time), the US stock market closed lower following hawkish remarks by Jerome Powell, Chair of the US Federal Reserve (Fed). The Dow Jones Industrial Average fell 102.35 points (0.30%) to close at 33,951.52, the large-cap S&P 500 index dropped 23.02 points (0.52%) to 4,365.69, and the tech-heavy Nasdaq index declined 165.10 points (1.21%) to finish at 13,502.20.

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), is holding a press conference after concluding the Federal Open Market Committee (FOMC) regular meeting on the 14th (local time) in Washington DC.
[Image source=AP·Yonhap News]

Earlier, on the 14th, the Fed held the benchmark interest rate steady at the Federal Open Market Committee (FOMC) meeting but raised the year-end median rate forecast on the dot plot from 5.1% to 5.6%, signaling the possibility of two baby steps (0.25 percentage point rate hikes) within the year.

Chairman Powell testified before the House Financial Services Committee, stating, "The majority of FOMC members believe there will be two rate hikes this year." He also said, "Inflation has somewhat eased since mid-last year," but added, "Inflationary pressures remain high, and the process to bring it down to the 2% target is still a long way off."

Currently, the market widely expects the Fed to resume rate hikes at the July FOMC meeting. According to the Chicago Mercantile Exchange (CME) FedWatch, federal funds (FF) futures markets are pricing in about a 72% chance of a baby step rate hike in July.

On the 22nd, the domestic stock market is expected to open lower due to the impact of the US market. Sangyoung Seo, Head of Media Content at Mirae Asset Securities, explained, "The Philadelphia Semiconductor Index, which had led gains and maintained strength, fell 2.68%, increasing profit-taking pressure, which burdens the domestic market. It is also important to note the recent expansion in volatility of the won-dollar exchange rate."

He continued, "In the first half of the year, the Korean won weakened due to the dollar's strength and global economic slowdown, but ahead of the June FOMC, it appreciated more than other currencies. This was driven by record-high net inflows of foreign securities investment in May, which supported increased net buying centered on the semiconductor sector, and active regional remittances by large corporations, partly taking advantage of some overseas dividends being tax-exempt, which fueled recent won strength."

He added, "Considering the ongoing global economic slowdown and trade deficit, the won is likely to weaken. This is expected to negatively affect foreign investors' supply and demand." He further stated, "The domestic stock market is expected to start with a decline of around 0.3%, then absorb profit-taking sales and show resilience."

Ji-young Han, a researcher at Kiwoom Securities, said, "The hawkish remarks by Chair Powell have triggered additional tightening concerns, and with the Nasdaq dropping over 1%, US-originated pressures are expected to exert downside pressure on the domestic market. From a sector perspective, considering that electric vehicle-related stocks like Tesla and semiconductor stocks such as Nvidia and Micron showed weakness due to downgrades and profit-taking, it is necessary to prepare for increased price volatility in semiconductor and secondary battery stocks in the domestic market today." She added, "The fact that international commodities showed concurrent strength due to China's additional stimulus measures and concerns over poor crop yields is expected to improve supply and demand conditions for related stocks in trading companies, agriculture, and fertilizers."