[Good Morning Stock Market] US Fed Leaves Room for Rate Hike... KOSPI Expected to Start Down 0.5%

Overnight, the U.S. stock market closed lower across the board due to the possibility of additional tightening within the year. The KOSPI is also expected to start down about 0.5% on the 21st.

On the previous day (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,440.88, down 76.85 points (0.22%) from the previous session. The Standard & Poor's (S&P) 500 index fell 41.75 points (0.94%) to 4,402.20, and the Nasdaq index also dropped 209.06 points (1.53%) to 13,469.13. The possibility that the U.S. Federal Reserve (Fed) may implement one more rate hike within the year widened losses, especially in technology stocks.

As expected by the market, the Fed held interest rates steady at the September Federal Open Market Committee (FOMC) meeting. However, it left open the possibility of one more 0.25 percentage point rate hike this year. Fed officials projected the year-end benchmark interest rate to reach 5.6% in the dot plot, which corresponds to a range of 5.50% to 5.75%, indicating an additional 0.25 percentage point increase from the current level. Among the 19 officials, 12 anticipated one rate hike, while the remaining 7 expected rates to remain unchanged.

The median interest rate forecast for next year also rose to 5.1%, up 0.5 percentage points from June's 4.6%. This suggests that a high interest rate environment above 5% could persist longer, increasing investor concerns. Fed Chair Jerome Powell stated, "We are prepared to raise rates further if appropriate, and plan to maintain restrictive levels until we are confident inflation is moving steadily toward our target."

Along with the Fed's hawkish stance, Treasury yields hit new highs again, expanding losses in technology stocks. Apple closed down 2% after announcing that pre-orders for the iPhone 15 fell short of expectations. Intel dropped 4.54% following warnings of a slow business recovery due to weak demand for data center chips. Other tech giants such as Alphabet (-3.05%), Microsoft (-2.40%), and Nvidia (-2.94%) also showed broad weakness.

The KOSPI index is expected to open down about 0.5% today. Seo Sang-young, head of the Media Content Division at Mirae Asset Securities, said, "The fact that the Fed has not ruled out additional rate hikes and the possibility of prolonged high interest rates, which caused the U.S. stock market to decline, will also weigh on the Korean stock market. The weakness in large tech stocks like Apple and Intel led to a 1.74% drop in the Philadelphia Semiconductor Index." He added, "Considering this, the Korean stock market is expected to start down about 0.5%, with changes depending on foreign investor flows. However, confidence in the economy means the decline is unlikely to widen significantly."