[Weekly Market Outlook] "Caution on Interest Rate Cut Expectations... Adjustment for the Time Being"

KOSPI Falls Below 2600 Consecutively
KOSDAQ Rises 1.36%
"Bull Market Not Over Yet," Opinions Also

The stock market is expected to show a correction phase this week (January 8-12).

Last week, the KOSPI fell by 2.91%, while the KOSDAQ rose by 1.36%. The KOSPI declined for three consecutive days recently, dropping below the 2600 level to 2570. Younghwan Kim, a researcher at NH Investment & Securities, analyzed, "The KOSPI, which had approached the 2700 level, fell below 2600 due to a rebound in interest rates and weakness in the IT sector. The U.S. 10-year Treasury yield, which had been below 3.8%, rose again to around 4.0%, indicating market caution against excessive expectations of interest rate cuts." He added, "The cancellation of ASML's deep ultraviolet (DUV) equipment exports to China at the request of the U.S. and the sharp drop in Apple’s stock price due to concerns over weakening iPhone demand also contributed to the weakness in domestic IT sector stocks, which is another reason for the correction."

[Image source=Yonhap News]

The correction is expected to continue for the time being. Researcher Kim said, "The market is currently retracing the gains made at the end of last year, and there is a possibility that the correction will proceed a bit further. During the short-term corrections in August and October last year, the Nasdaq index fell about 8% from its previous high to the low point, but the current correction is around 4%." NH Investment & Securities projected the KOSPI range for this week to be between 2500 and 2620.

For the market to regain its upward momentum, uncertainty over interest rate cuts and corporate earnings improvements will likely need to be resolved. Researcher Kim explained, "For the market to rise again, the gap between investors' expectations for the number of U.S. interest rate cuts this year and the Federal Reserve's stance needs to narrow, or additional earnings improvements from U.S. big tech companies need to be confirmed. Investors are still expecting six rate cuts within the year."

Supply and demand issues are also cited as factors increasing market volatility. Kyungmin Lee, a researcher at Daishin Securities, pointed out, "The KOSPI is experiencing the aftereffects of foreign investors' excessive futures buying and large-scale dividend arbitrage program purchases at the end of the year. Foreign investors, who recorded a net futures purchase of 4.97 trillion KRW in December, have sold over 2 trillion KRW in the futures market since the beginning of the year, turning the year-end seasonal supply and demand into a boomerang. Therefore, volatility due to domestic selling pressure should be expected for the time being."

There are opinions that the bull market is not over. Seungyoung Park, a researcher at Hanwha Investment & Securities, said, "The early-year correction is technical, and the bull market is not over. A price adjustment was necessary after the rapid rise, and the correction was caused by the liquidation of financial investment profit-taking that flowed in massively at the end of last year. Once the technical correction is complete, the domestic stock market will rise again."

For the time being, a focus on KOSDAQ growth stocks is expected to be necessary. Even last week, while the KOSPI fell nearly 3%, the KOSDAQ rose more than 1%. Researcher Park said, "The semiconductor sector, which was the leading industry last year, is expected to take a break until Nvidia’s earnings announcement next month. While semiconductors are resting, buying momentum will shift to KOSDAQ growth stocks."

Key schedules for this week include Eurozone retail sales for November on the 8th, U.S. December Consumer Price Index (CPI) on the 11th, and China’s December CPI, Producer Price Index (PPI), exports and imports, as well as U.S. December PPI on the 12th. Researcher Lee said, "The U.S. December CPI is expected to rebound by 0.2% month-over-month and 3.3% year-over-year according to market consensus, while core CPI is likely to slow to 0.2% month-over-month and 2.8% year-over-year. Due to the mixed inflation trends, it is difficult to predict market reactions." He added, "If concerns about inflation rebound increase, the impact could be significant, so this CPI report is likely to have a greater negative impact than a positive one."