[Weekly Market Outlook] Has the 'High-Interest Rate Tunnel' Ended? Gradual KOSPI Rise Expected

The stock market this week (6th to 10th) is expected to rally, fueled by expectations that the US interest rate hikes have ended. The securities industry anticipates improved supply and demand, particularly for growth stocks that have seen excessive price declines.

According to the Korea Exchange on the 5th, the KOSPI index closed at 2368.34 on the 3rd, up 65.53 points (2.85%) from the previous week. Although it briefly fell below the 2300 mark during the week, the November US Federal Open Market Committee (FOMC) meeting results were interpreted as dovish, leading to a three-day consecutive rise of over 1% in the latter part of the week. During the same period, the KOSDAQ index also rose 33.56 points (4.48%) to close at 782.05, marking three consecutive days of gains since November.

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

The US Federal Reserve (Fed) held the benchmark interest rate steady at 5.25?5.50% on the 1st (local time). Fed Chair Jerome Powell stated in the subsequent press conference that "financial conditions have tightened due to rising long-term bond yields over recent months," which the market effectively interpreted as signaling the end of rate hikes. Following the Fed's announcement, the US 10-year Treasury yield declined, and the Nasdaq index rose over 1%, eliciting cheers.

Lee Hyuk-jin, a researcher at Samsung Securities, explained, "Investors raised their expectations for the final rate hike immediately after the November FOMC." He added, "The probability of a rate hike at the December FOMC is quite low, around 20%, and there are signs that the supply and demand conditions for long-term bonds will improve." He continued, "If a relief rally begins in the domestic stock market, the most advantageous in the yield game will be the oversold growth stocks," adding, "The decline in interest rates has created a favorable environment for growth stocks, and the recent price drop could raise expectations for a rebound in returns."

NH Investment & Securities projected the weekly KOSPI range to be between 2290 and 2410 points. The easing pressure on US long-term Treasury yields and improvements in the semiconductor sector in the fourth quarter are positive factors. However, concerns about economic slowdown, political conflicts over the US budget issue, and geopolitical risks in the Middle East remain burdens on the market.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "As pressure from rising interest rates diminishes, downside risks in the stock market will ease." He noted, "Due to high interest rates, investor sentiment had been subdued, ignoring the strong earnings of major US big-tech companies, but now the market is expected to reassess these positive factors." However, he cautioned, "If asset markets rise rapidly again due to falling long-term yields, verbal intervention by the Fed could occur again," and added, "It is also difficult to ignore concerns that high interest rates might cause an economic slowdown." Regarding the KOSPI index movement, he said, "After partially recovering from the recent decline, it is expected to show a gradual upward trend as improvements in fundamentals such as exports and corporate earnings are confirmed."