[Good Morning Stock Market] "US Earnings Downgrade Deepens... KOSPI Expected to Start Lower"

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The Korean stock market is expected to start lower on the 24th. This is due to the deepening downward revision of earnings in the U.S. stock market ahead of the U.S. Federal Reserve's (Fed) monetary policy meeting on the 26th (local time).

On the 24th, Sangyoung Seo, Head of Media Content at Mirae Asset Securities, stated, "The Korean stock market is expected to start down about 0.3%, but as major countries' monetary policies and individual corporate earnings announcements approach, there tends to be a digestion of volume, leading to a stock-specific market."

The biggest issue attracting market attention is earnings announcements. Currently, there is a strong wait-and-see sentiment ahead of the full-scale earnings announcements of large tech stocks. While some stock groups are undergoing a process of volume digestion, the market is reacting sensitively to earnings. Unlike in the past, even minor negative factors are triggering sell-offs, suggesting that the volume digestion process is proceeding based on the earnings season.

According to market research firm FactSet, 18% of S&P 500 companies have reported earnings so far. Among them, 75% posted operating profits exceeding expectations. This figure is below the five-year average of 77%. The profit size also decreased by 9.0% compared to the previous year. This is the second-lowest level following a 31.6% decrease in the second quarter of 2020 compared to the previous year.

Margins also recorded 11.1%, the lowest level since 10.9% in the fourth quarter of 2020. Notably, this is below the five-year average of 11.4%. Ultimately, despite lower margins and weak earnings, the stock index's upward trend has been clear, leading some to raise concerns about overvaluation and increasing desires to realize profits.

In fact, the forward 12-month price-to-earnings ratio (PER) of the S&P 500 stood at 19.5 times. This far exceeds the 10-year average of 17.4 times and the five-year average of 18.6 times. The forward 12-month PER for the IT sector reached 27.7 times, significantly surpassing the 10-year average (19.3 times) and the five-year average (22.5 times).

Large-cap stocks such as MS, Meta, and Amazon, whose earnings will be announced this week, as well as semiconductor and tech stocks like Intel and IT, are expected to see increased volatility after their earnings announcements. Concerns about increased volatility in the U.S. stock market could also weigh on the Korean stock market.

Additionally, the Federal Open Market Committee (FOMC) meeting scheduled for the 25th-26th (local time) is cited as a factor heightening market caution. The U.S. stock market closed mixed and flat last Friday (local time) as it digested volume ahead of major central bank meetings such as the European Central Bank (ECB) and the Bank of Japan (BOJ). Considering this, the Korean stock market is also expected to start slightly lower while digesting volume amid limited changes.

Head Seo concluded, "Ultimately, the Korean stock market is expected to start down about 0.3%, but as major countries' monetary policies and individual corporate earnings announcements approach, there tends to be a digestion of volume, leading to a stock-specific market."