Daishin Securities Report
Expectations of a Federal Reserve (Fed) interest rate cut are driving the gains in the U.S. stock market, according to an analysis. Daishin Securities advised that the strong trend in the U.S. stock market is heading toward a Santa rally, and that shallow volatility expansion should be seen as an opportunity to increase exposure.
Moon Nam-jung, a researcher at Daishin Securities, stated in a report released on the 6th, "December is a month full of events, including the December Federal Open Market Committee (FOMC) meeting on the 17th-18th (local time), the possibility of a federal government shutdown by the deadline on the 20th, and the potential arrival of a Santa rally around Christmas during the year-end shopping season." He added, "The current strength in the U.S. stock market is attributed to the focus on economic stimulus rather than uncertainty from Trump's election, considering the first administration, which has helped improve corporate earnings and stock market gains. This has strengthened risk-on sentiment. As a result, investor sentiment toward December events is expected to be interpreted positively."
He also anticipated that the impact of the November Consumer Price Index (CPI) data, scheduled for release on the 11th, on investor sentiment would be limited. Moon Nam-jung said, "Even if the November CPI/core results on the 11th exceed the previous month, they will be regarded as a one-off factor, with more focus on inflation levels in the mid-2% range. This means the Fed will not be influenced to cut rates by 25 basis points. Additionally, although concerns about a federal government shutdown by the 20th deadline may increase, Congress is expected to swiftly pass a temporary budget extension before the deadline until March next year, limiting the impact on investor sentiment."
He further predicted that expectations of a Fed rate cut would increase the gains in the U.S. stock market before the full onset of the Santa rally. The Santa rally refers to the phenomenon where stock prices show strength around Christmas and the beginning of the new year.
Moon said, "The current U.S. stock market is seeing expectations of a Fed rate cut ahead of the December FOMC, acting as a catalyst signaling the start of the Santa rally. Regarding Fed Chair Powell's remarks on the 4th, the market is interpreting the rate cut as a baby cut rather than a big cut, so the expectation of a Fed rate cut will be a driving force for the U.S. stock market to increase its gains before the Santa rally arrives."
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