[Weekly Market Outlook] Rising on 'Interest Rate Cut' Expectations... Year-End Supply and Demand Issues Require Caution

The domestic stock market this week (18th-22nd) is expected to continue the upward trend from last week. However, short-term corrections remain possible due to year-end supply and demand issues.

Last week, the KOSPI closed at 2,563.56, up 45.71 points (1.82%) from the previous week. The December Federal Open Market Committee (FOMC) meeting was interpreted as a dovish stance on U.S. monetary policy, which acted as a positive factor for the stock market. In particular, the semiconductor sector showed a strong upward trend. The KOSDAQ also closed at 838.31, up 7.94 points (0.96%) from the previous week. Compared to the KOSPI, the KOSDAQ's rise was relatively modest as it showed declines in semiconductor and software sectors, except for some secondary battery-related industries.

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

Lee Kyung-min, a researcher at Daishin Securities, said, "The December FOMC met all the market participants' expectations of 'signaling the end of the rate hike cycle, increasing the number of rate cuts next year, and expectations for a soft landing.'" He added, "As a result, the lower bound of the KOSPI next year is expected to rise, and the timing for the resumption of the upward trend is likely to be brought forward." He continued, "The rebound that began at the October low is expected to continue until early Q1 next year," and "especially if China's economic recovery and stimulus policy expectations are introduced, a differentiated rebound is expected in the Chinese-speaking regions including Korea and China, as well as emerging Asian markets." However, he noted, "The gap between the heightened market expectations after the December FOMC and the Fed's stance is a burden," emphasizing, "It is a time to be cautious of short-term correction possibilities."

Expectations that the timing of rate cuts next year will come sooner and the number of cuts will increase are clearly having a positive effect on the year-end stock market trend. However, it is also important to note that differentiated market conditions are still unfolding by sector. In particular, the issue of 'sell-offs to avoid capital gains tax,' a chronic problem in the domestic stock market at year-end, is expected to recur. Choi Yoo-jun, senior researcher at Shinhan Investment Corp., analyzed, "The capital gains tax-related individual supply and demand issue is dominant," adding, "Since December, foreigners have net bought about 1.6 trillion KRW, and institutions about 1.9 trillion KRW, while individuals have continued net selling of about 3.7 trillion KRW in the KOSPI, exerting downward pressure." He emphasized, "Although this is mostly a supply and demand issue unrelated to fundamentals, some stocks may experience undershooting, so caution is needed."

NH Investment & Securities projected the KOSPI range for this week to be between 2,450 and 2,580 points. The possibility of the U.S. Federal Reserve formalizing rate cuts next year and AI theme momentum were cited as upward factors, while excessive expectations for rate cuts were noted as downward factors. Na Jung-hwan, a researcher at NH Investment & Securities, said, "The domestic stock index is showing limited upward momentum due to real estate PF risks such as Taeyoung Construction and individual year-end major shareholder capital gains tax issues," adding, "There is also a possibility of program sell-offs on the ex-dividend date (December 27), which could weigh on stock prices." He further stated, "If stock prices fall due to year-end supply and demand issues, a strategy of buying at the lower end of the trading range will be effective," and "considering the possibility that individual investors will increase their investment proportion in the AI industry after supply and demand issues are resolved in January, attention should be paid to the semiconductor, internet, and IT solution sectors."