[Good Morning Stock Market] US Stock Market Faces Inflation Shock... KOSPI Expected to Weaken

US January CPI Exceeds Market Expectations at 3.1%
Inflation Surpasses Forecasts, Diminishing Rate Cut Hopes
US Treasury Yields and Dollar Strengthen... "Responding to Low PBR Stocks"

On the 14th, the domestic stock market is expected to show weakness due to the impact of the U.S. 'Consumer Price Index (CPI) shock.'

[Image source=Reuters Yonhap News]

On the 13th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 38,272.75, down 524.63 points (1.35%) from the previous session. The S&P 500 index fell 68.67 points (1.37%) to 4,953.17, and the Nasdaq index closed at 15,655.60, down 286.95 points (1.80%) from the previous session.

On that day, the U.S. stock market declined across all sectors following the January CPI results, which exceeded expectations. The January CPI was 3.1%, surpassing the market forecast of 2.9%. The smallest declines were seen in healthcare (-0.9%), consumer staples (-1%), and industrials (-1%), while the largest drops occurred in consumer discretionary (-2%), real estate (-1.8%), and utilities (-1.7%). The 'Magnificent 7' (Apple, Amazon, Alphabet, Microsoft, Meta, Nvidia, Tesla) all fell. Microsoft (-2.17%), Apple (-1.13%), Google Alphabet (-1.59%), Nvidia (-0.17%), Amazon (-2.15%), Meta (-1.87%), and Tesla (-2.18%) each experienced declines exceeding 1%.

The higher-than-expected inflation has also dampened expectations for interest rate cuts. Bloomberg reported that "traders are withdrawing bets on the possibility of rate cuts before July." Recently, members of the U.S. Federal Reserve (Fed) have expressed that rate cuts would be possible once there is confidence that inflation is moving toward the 2% target. The yield on the sensitive 2-year U.S. Treasury note surged by 0.187 percentage points from 4.467% to 4.654%, marking the highest level since December 12 of last year (4.73%). The dollar index, which measures the value of the U.S. dollar against six major currencies, rose 0.67 points to 104.84, reaching its highest level in three months.

The previous day, the domestic stock market opened higher, reflecting the strong performance of the U.S. stock market centered on artificial intelligence (AI) companies such as ARM and Nvidia during the holiday period. Although some profit-taking occurred in certain low price-to-book ratio (PBR) stocks during the session, the KOSPI index closed at 2,649.64, up 29.32 points from the previous session, supported by simultaneous net buying of semiconductors by foreign and institutional investors.

Han Ji-young and Kim Ji-hyun, researchers at Kiwoom Securities, stated, "The domestic stock market is expected to show a neutral to below-neutral price trend due to the negative environment caused by the January inflation indicator shock, including the rise in the dollar and interest rates." They added, "Considering the remaining expectations for 'corporate value-up programs' in low PBR sectors, these sectors may be advantageous in responding to today's market." Furthermore, they noted, "In the short term, increased volatility in supply and demand is expected in low PBR sectors such as banks and automobiles."