[Market ING] KOSPI 2700 Level Fails to Hold Despite Nvidia's Strong Earnings, Short-Term Shock Expected

KOSPI Expected Band 2670~2800 Range

This week’s (May 27?31) stock market is expected to continue favoring companies with confirmed earnings growth amid ongoing uncertainties such as monetary policy.

On the 24th, the KOSPI index opened at 2693.65, down 28.16 points (1.03%) from the previous trading day, as dealers were working in the Hana Bank dealing room in Jung-gu, Seoul. The won-dollar exchange rate started trading at 1369 won, up 6.6 won from the previous trading day. Photo by Kang Jin-hyung aymsdream@

Last week, the KOSPI fell by 1.36%, and the KOSDAQ dropped by 1.83%. The KOSPI closed below the 2700 level for the first time in two weeks. The KOSDAQ also fell below the 840 level. Even the anticipated strong earnings from Nvidia failed to support the 2700 mark.

Lee Kyung-min, a researcher at Daishin Securities, explained, "The May Federal Open Market Committee (FOMC) minutes confirmed the Federal Reserve’s hawkish (preference for monetary tightening) stance, and strong economic indicators heightened inflation concerns, causing the KOSPI to fall below 2700 after 13 trading days. The implied rate for the December FOMC, which had dropped to 4.81%, rebounded to 4.98%, and U.S. Treasury yields approached the 4.5% range. The rebound in the 10-year U.S. Treasury yields led to foreign investors selling KOSPI futures, and Nvidia’s strong earnings were insufficient to reverse the stock market sentiment," he analyzed.

There are forecasts that rising interest rates could damage investor sentiment. Kang Jae-hyun, a researcher at SK Securities, said, "With Nvidia marking the end of the earnings season, it will be difficult to find opportunities for the stock market to rise sharply driven by earnings momentum in June. From now until the beginning of the month, interest rates are expected to rise above current levels, which could slightly impair stock market investor sentiment," he said.

Although short-term shocks seem inevitable, it is expected that anxiety over monetary policy will not intensify. Lee said, "While short-term shocks must be considered, the likelihood of monetary policy anxiety intensifying or persisting is low because the market has already priced in at least one rate cut this year as well as some burden from rate freezes or hikes," he explained.

Due to concerns over monetary policy, the trend of concentrating on stocks with strong earnings is expected to continue. Kim Young-hwan, a researcher at NH Investment & Securities, said, "Despite the slowdown in U.S. consumer inflation in April, uncertainty related to Fed monetary policy remains, and it is necessary to confirm a stable trend in inflation indicators over several months. Amid ongoing macroeconomic uncertainties, the concentration on companies with confirmed earnings growth is likely to continue for the time being." NH Investment & Securities projected the KOSPI range for this week to be between 2670 and 2800.

Attention is focused on whether the market sentiment will reverse after the scheduled data releases this week. Lee said, "With the release of the U.S. first-quarter GDP growth rate and April personal consumption expenditure (PCE) inflation on the 30th, there is a high possibility that expectations for economic slowdown and price stability will be revived. If monetary policy anxiety eases this week, a reversal in KOSPI sentiment will become visible," he forecasted.

Key events scheduled for this week include the U.S. Memorial Day market holiday on the 27th, the release of the U.S. Conference Board Consumer Confidence Index for May on the 28th, the publication of the U.S. Fed Beige Book and the revised U.S. first-quarter GDP on the 30th, and the release of China’s May National Bureau of Statistics Purchasing Managers’ Index (PMI) and U.S. April PCE inflation data on the 31st.