[Good Morning Stock Market] US Stocks Fall on Strong Retail Sales... KOSPI Expected to Underperform

December US Retail Sales Increase by 0.6%

The U.S. December retail sales indicator was confirmed to be stronger than expected, further reducing expectations for an interest rate cut by the U.S. Federal Reserve (Fed).

On the 17th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 37,266.67, down 0.25% from the previous trading day. The S&P 500 index fell 0.56% to 4,739.21, and the tech-heavy Nasdaq index ended trading down 0.59% at 14,855.62.

Contrary to market expectations that year-end consumption would slow, U.S. retail sales in December recorded a solid level. According to the U.S. Department of Commerce announcement on the day (local time), December U.S. retail sales increased by 0.6% month-on-month to $709.9 billion. This growth rate exceeded Wall Street’s forecast of 0.4%. It proved that consumer spending, which accounts for two-thirds of the U.S. economy, was stronger than expected.

With the solid economic indicators confirmed, the pace of U.S. benchmark interest rate cuts is likely to slow. The Fed was expected to pivot (shift from tightening policy) this year, but recently, comments from Fed officials have lowered expectations for the start of a rate cut cycle in March. Fed Governor Christopher Waller drew a line under the possibility of an early rate cut. According to CNBC, the CME Group estimates a 57% probability of a rate cut in March.

On the previous day, Asian stock markets, including the KOSPI, mostly recorded weak performances. The KOSPI closed at 2,435.90, down 2.47% from the previous trading day, plunging to its lowest level since November 14 last year (2,433.25). This means it has given up all the gains made over the past two months. The KOSDAQ index also closed down 2.55% at 833.05. Mainland Chinese stock markets fell by around 2%, and the Hong Kong market showed a decline of over 4%. The Indian stock market also dropped 2%, while Japan’s Nikkei 225 index recorded a limited decline of about 0.4%.

Joon-ki Cho, a researcher at SK Securities, said, "The sharp drop in the New York Empire State Manufacturing Index the previous day, Governor Waller’s hawkish remarks, and weak real economy indicators such as China’s fourth-quarter gross domestic product (GDP) served as triggers for the decline," but added, "There are doubts about whether these factors alone justify such a significant drop in the indices."

The KOSPI is expected to continue its sluggish trend for the time being. With a lack of positive factors to lead a market rebound, major U.S. stocks are also continuing to report weaker-than-usual earnings. Researcher Cho evaluated, "The market has fallen enough to expect a technical rebound, but the problem is that it is difficult to find a turning point that could act as a trigger for a rebound," adding, "The environment in China is unlikely to improve anytime soon, and relatively limited events are expected on the U.S. side."