[Good Morning Stock Market] Nasdaq Falls 2.2% on US Credit Rating Downgrade... KOSPI Expected to Start Lower

Overnight, the U.S. stock market plunged on news of a downgrade in the national credit rating. The KOSPI is also expected to start down about 0.5% on the 3rd.

On the previous day (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,282.52, down 348.16 points (0.98%) from the previous session. The Standard & Poor's (S&P) 500 index fell 63.34 points (1.38%) to 4,513.39, and the Nasdaq index dropped 310.47 points (2.17%) to close at 13,973.45.

The broad decline in the U.S. stock market was due to the international credit rating agency Fitch downgrading the U.S. national credit rating by one notch from the highest rating (AAA → AA+), which worsened investor sentiment. Additionally, this triggered profit-taking selling, especially in technology stocks that had seen significant gains.

However, despite the credit rating downgrade, the U.S. Treasury market was largely unaffected. The 10-year U.S. Treasury yield traded mixed, rising about 5 basis points (1bp = 0.01 percentage points) to around 4.08%, while the 2-year Treasury yield fell about 2 basis points to around 4.89%. Analysts suggest that even with the downgrade, the investment value of U.S. Treasuries, as the global reserve currency issuer, does not significantly decline, so the market impact is expected to be limited.

The U.S. employment data released that day also helped support the downside of stock indices. According to the ADP National Employment Report, private sector employment increased by 324,000 in July compared to the previous month. Although this was lower than the prior month's increase of 455,000, it nearly doubled the expert forecast of 175,000 compiled by The Wall Street Journal (WSJ). Investors are closely watching the U.S. Department of Labor's employment report to be released the next day, as strong employment data could increase the likelihood of further interest rate hikes by the Federal Reserve (Fed).

The KOSPI is expected to open lower that day. Seo Sang-young, head of the Media Content Division at Mirae Asset Securities, said, "The U.S. stock market declined due to profit-taking selling triggered by the U.S. credit rating downgrade following Asia and Europe, which is a burden on the Korean stock market." He added, "In particular, semiconductor, AI, electric vehicle, and secondary battery sectors, which have driven the recent rise, are leading the decline, making increased volatility in related stocks inevitable." However, he noted, "It is important to remember that the credit rating downgrade in 2011 only had a short-term impact on the stock market," and added, "The Korean stock market is expected to start down about 0.5%, followed by a day of significant volatility among individual stocks."