[Good Morning Stock Market] Interest Rate 'Pessimism' Spreads Amid Strong Employment... US Stock Market Plummets

Employment Figures Exceed Expectations, Inflation Also Expected to Remain Strong
Major U.S. Indexes Drop Over 1% Amid Pessimism About Rate Cuts
"KOSPI's Downside From U.S. Decline Limited... But Upside Potential Also Low"

The U.S. stock market plunged as a 'employment surprise' and pessimism over interest rate cuts spread.

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On the 10th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 41,938.45, down 696.75 points (1.63%) from the previous session. The S&P 500 index fell 91.21 points (1.54%) to 5,827.04, and the Nasdaq Composite index dropped 317.25 points (1.63%) to 19,161.63, respectively.

The U.S. nonfarm payrolls for December, released that day, reported 256,000 new jobs, far exceeding the expected 160,000. While the employment surprise is good news for the U.S. economy, it raised expectations that the Federal Reserve (Fed) is more likely to hold interest rates steady, causing market volatility. Consequently, U.S. Treasury yields and the dollar value also reached 52-week highs.

By individual stocks, among the 'Magnificent 7 (M7),' six stocks fell except for Meta, which rose 0.84%. Nvidia (-3.00%) experienced the largest decline. Nvidia's drop was driven by the overall tech sector downturn and concerns over intensified competition in artificial intelligence (AI) and high-performance computing fields. Meanwhile, Delta Air Lines surged 9% following JP Morgan's target price upgrade and news of flight cancellations due to a winter storm. Constellation Brands, a beverage company famous for Corona beer, fell 17% due to disappointing earnings and a downward revision of guidance. Mercury General, an insurance company with business concentrated in California, plunged 20% amid expectations of massive losses from large wildfires.

The market is now focusing on the December consumer price index (CPI) following last December's employment data. Inflation is also a key factor influencing the Fed's interest rate decisions. This indicator will be released on the 15th of this month. According to a Bloomberg survey of economists, the core CPI for December is expected to rise 0.2% month-over-month. Bloomberg analyzed, "This suggests that progress toward easing inflation has stalled," and "supports arguments for a cautious approach to future monetary policy decisions." Pessimism about interest rate cuts is spreading. Another major indicator to watch this week is China's fourth-quarter gross domestic product (GDP), to be announced on the 17th.

Last week, the KOSPI closed at 2,515.78, up 3.03% from the previous week. The KOSDAQ index also ended at 717.89 points, up 1.72%. With uncertainties such as Samsung Electronics' earnings announcement resolved and the won-dollar exchange rate stabilizing, investor sentiment revived. In terms of gains, it was the highest among major global stock markets.

Kwon Soon-ho, a researcher at IBK Investment & Securities, said, "The domestic stock market will start weak reflecting the U.S. employment data, but the scope for further short-term declines is limited," adding, "In the past, when the KOSPI showed lower sensitivity compared to global markets, its one-month returns outperformed the U.S. stock market, leading to positive price trends." He added, "However, since major companies' earnings were weak last week, profit forecasts have continued to be revised downward, and domestic political uncertainties remain, the potential for further short-term gains is low."