[Weekly Market Outlook] Uncertainty Over US Interest Rate Hikes... July Expected to Continue 'Volatile Market'

The stock market this week (3rd to 7th) is expected to see investors taking a wait-and-see approach ahead of the U.S. Federal Reserve's (Fed) additional interest rate hikes, recession concerns, and the corporate earnings announcement season.

According to the securities industry on the 2nd, the expected weekly KOSPI band is 2490 to 2610 points. Expectations for improved U.S.-China relations and the approaching Q2 earnings season are factors supporting an increase. On the other hand, the Fed's monetary policy risks are considered a downside factor.

Labor Researcher Noh Dong-gil of Shinhan Investment Corp. said, "July and August are seasonally periods of weak directionality and low trading volume," adding, "If the recent short-term price rise burden combines with cautious sentiment toward earnings, a short-term period of adjustment is expected." He added, "If the Q2 earnings season is not bad, a resumption of the upward trend can be anticipated in the near term."

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed) [Image source=Yonhap News]

Currently, the financial market highly anticipates that the Fed will raise the benchmark interest rate by 0.25 percentage points this month and then keep it steady for the rest of the year. However, at last month's Federal Open Market Committee (FOMC) meeting, 12 out of 18 members supported an additional 0.50 percentage point rate hike. This divergence in interest rate outlooks between the Fed and market investors is expected to negatively affect investor sentiment.

However, the Q2 earnings season is expected to bring positive factors as major domestic listed companies, including semiconductor firms, are likely to report results exceeding market expectations. Samsung Electronics is scheduled to announce its preliminary Q2 earnings on the 7th. Following Micron's earnings announcement that surpassed market expectations, optimism has grown that the semiconductor industry has bottomed out. The Q2 operating profit forecasts for Samsung Electronics and SK Hynix have been gradually revised upward as the earnings announcement season approaches.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "Uncertainty remains over the number of additional rate hikes by the Fed in the second half of the year," adding, "In the first and second weeks, Fed officials are expected to make several remarks about monetary policy, and if hawkish comments continue, investor sentiment in the stock market could be shaken." He also noted, "Recently, foreign funds have concentrated only on semiconductor stocks while selling other stocks, preventing broad market participation. The turning point will be the Q2 earnings season, but the week with a large number of earnings announcements excluding semiconductors is the third week of July, which coincides with the Fed's blackout period when officials are prohibited from commenting on monetary policy." He concluded, "Until late July, when policy uncertainty decreases and expectations for earnings momentum rise, a volatile market is expected to continue."

Major scheduled events this week include South Korea's June Consumer Price Index release on the 4th, the U.S. Fed's June FOMC minutes release on the 5th, Eurozone May retail sales on the 6th, Samsung Electronics' preliminary Q2 earnings announcement, and the U.S. June employment report on the 7th.