"Focus on Stocks with Excessive Declines After US Fed Rate Cut"

On April 21, Hana Securities analyzed that investors should pay attention to stocks that have experienced excessive declines following a potential interest rate cut by the US Federal Reserve (Fed).

Hana Securities predicted that weak US economic indicators could heighten expectations for a rate cut, potentially leading to a rebound in the market index.

Lee Jaeman, a researcher at Hana Securities, stated, "Fed Chair Jerome Powell is still maintaining a cautious, data-dependent stance, and concerns over inflation remain." He explained, "Since 2018, the Fed has cut its benchmark rate when the Citi US Economic Surprise Index reached the -50 point level."

He added, "Currently, the index stands at -22 points. If additional economic indicators deteriorate, this could further raise expectations for a rate cut and potentially trigger a rebound in the market index."

He noted, "The price-to-earnings ratio (PER) of the S&P 500 index has dropped by 14% to 19.2 times, compared to the annual high of 22.4 times." He projected, "A full-scale rebound in valuations is likely to occur after a shift in the Fed's monetary policy, such as a rate cut or the end of quantitative tightening."

Lee emphasized the need to focus on stocks with excessive PER declines after the Fed's rate cut. He said, "The recent drop in stock prices can mostly be explained by a fall in PER. However, as mentioned earlier, a rebound in PER is likely to materialize in earnest only after the Fed cuts rates, so it will be important to focus on stocks with excessive PER declines following the rate cut."

He also explained that during the current earnings season, attention should be paid to sectors where PERs have fallen and concerns over profit declines have already been reflected.

He said, "Since this is before the rate cut and before the impact of tariff impositions, it is difficult to assign much significance to current earnings estimates." However, he added, "If I were to suggest an investment strategy for the earnings announcement season, I would recommend focusing on sectors where both PER and concerns over profit declines have been reflected during the process of stock price declines from their peaks."

He further stated, "Although profit growth is expected in 2025, sectors within the S&P 500 index such as technology hardware and equipment, diversified financials, materials, and transportation, as well as secondary batteries, healthcare, software, and steel within the KOSPI, have already reflected concerns over profit declines amid recent stock price drops."