[Weekly Market Outlook] Stock Market Gradual Rise... Securities Industry Warns "Beware of Excessive Expectations for Interest Rate Cuts"

The stock market this week (20th to 24th) is expected to continue a gradual upward trend. Investors' attention is likely to focus on U.S.-related interest rate events, such as speeches by Federal Reserve (Fed) officials regarding monetary policy and the release of the November Federal Open Market Committee (FOMC) meeting minutes.

On the 17th, the KOSPI index closed at 2,469.85, up 60.19 points (2.50%) from the previous week. The index rose on expectations that interest rate hikes would end after the U.S. October Consumer Price Index (CPI) fell short of forecasts. During the same period, the KOSDAQ index closed at 799.06, up 9.75 points (1.24%). Last week, Tesla's stock price showed a strong trend, leading to gains in domestic secondary battery sector stocks, which helped drive the index higher.

[Image source=Reuters Yonhap News]

NH Investment & Securities projected the weekly expected KOSPI fluctuation range to be between 2,430 and 2,560 points. Factors supporting the stock price rise include U.S. price stabilization, the extension of the U.S. Congress's temporary budget bill, and optimism for the U.S. year-end shopping season. On the other hand, potential verbal interventions by Fed officials in response to falling interest rates and geopolitical risks in the Middle East are considered downside factors.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "Recently, political uncertainty in the U.S. has eased, and interest rates have fallen based on declining inflation," adding, "This is a factor that injects optimism into the stock market." However, he also noted, "It is necessary to keep in mind that the decline in long-term U.S. Treasury yields cannot continue to act as a driving force for the stock market's rise indefinitely," and added, "Since such a rapid pace of interest rate decline cannot continue, the stock market is expected to show a gradual upward trend, but the speed is likely to slow down gradually."

The market's expectations for interest rate cuts being excessively ahead of reality is a point to be cautious about. Lee Kyung-min, a researcher at Daishin Securities, said, "Bond yields and the U.S. dollar are expected to maintain a downward stabilization trend, but in the short term, it is likely to enter a phase of speed adjustment." He added, "While short-term fluctuations should be expected during the process of retreating from excessive expectations for U.S. interest rate cuts, breaking through the 2,500-point level this month and the 2,600-point level within the year is highly likely."