[Weekly Market Outlook] Fourth Quarter Earnings Concerns... Consolidation Phase Likely to Continue

The stock market is expected to enter a consolidation phase this week (January 15-19). This is due to retreating expectations for U.S. interest rate cuts and the preliminary earnings of Korean companies falling short of market expectations. Securities firms are advising investments focused on sectors with clear earnings improvements.

On the 11th, when the first Monetary Policy Committee meeting of the new year was held, the KOSPI index started with a slight rise but fluctuated between declines and gains. Employees are working in the dealing room at Hana Bank in Myeongdong, Seoul. Photo by Heo Younghan younghan@

The KOSPI fell for eight consecutive days as of the 12th, dropping below the 2,600 level to 2,520. This marks the longest downward trend since May 2022. The KOSDAQ index also closed at 868.08, down 10.25 points (1.17%).

The semiconductor sector showed weakness as Samsung Electronics' preliminary Q4 earnings fell short of market expectations. Due to Samsung Electronics' underperformance, the Q4 and full-year operating profit forecasts for the KOSPI were also revised downward.

Kim Young-hwan, a researcher at NH Investment & Securities, stated, "Considering that Q4 typically reflects one-time costs and earnings shocks, there is a high possibility that the 2024 earnings outlook will be further downgraded."

Next week, the earnings reports of major U.S. financial institutions and domestic conglomerates are scheduled, which is expected to contribute to market volatility. Starting with Morgan Stanley and Goldman Sachs on the 16th, major U.S. financial firms such as Charles Schwab and U.S. Bancorp will announce earnings on the 17th. TSMC, which leads the domestic semiconductor industry, will report earnings on the 18th, followed by Microsoft and Netflix on the 23rd, Tesla on the 24th, and Apple on the 25th. On the 25th, domestic conglomerates including SK Hynix, Hyundai Motor, NAVER, and POSCO Holdings will also release their earnings consecutively.

Lee Kyung-min, a researcher at Daishin Securities, said, "The earnings shock from Samsung Electronics has increased uncertainty for Q4 results," adding, "As the 12-month forward earnings per share (EPS) growth slows down, similar to the Q3 earnings season, it could stimulate volatility in the KOSPI."

Lee forecasted, "There is a high possibility of forming a support zone between 2,460 and 2,500 in January and February," advising that short-term risk management should be strengthened until then.

Accordingly, the KOSPI is expected to continue its consolidation phase this week. NH Investment & Securities suggested a weekly KOSPI expected trading range (band) of 2,490 to 2,160.

There are also opinions that the moment expectations for interest rate cuts decline, it could become a burden on the stock market.

Researcher Kim Young-hwan noted, "Expectations remain high that the U.S. Federal Reserve (Fed) will cut the benchmark interest rate in March," adding, "When these expectations retreat, it could act as a burden on the stock market."

Since Q4 earnings are seasonally likely to decline, there is advice to formulate investment strategies based on earnings. Roh Dong-gil, a researcher at Shinhan Investment Corp., said, "Portfolios should be constructed focusing on sectors and stocks that showed favorable results in the Q4 earnings season," adding, "Sectors with generally upward earnings revisions tended to meet expectations."