[Good Morning Market] US Surges on Rate Cut Hopes... Korean Stocks Expected to Rise Amid Tax Reform Uncertainty

On August 5, the Korean stock market is expected to open higher, influenced by a sharp rebound in the US stock market driven by expectations of a Federal Reserve (Fed) interest rate cut. While close attention is being paid to the progress of the government's tax reform plan, sectoral differentiation is likely to emerge depending on corporate earnings announcements.

Yonhap News Agency

On August 4 (local time) in the New York stock market, the Dow Jones Industrial Average closed at 44,173.64, up 585.06 points (1.34%) from the previous trading day. The S&P 500 Index rose by 91.93 points (1.47%) to 6,329.94, marking the largest daily gain since May. The tech-heavy Nasdaq Index surged by 403.45 points (1.95%) to reach 21,053.58. The Russell 2000 Index, which focuses on small- and mid-cap stocks, also climbed 2.11%, indicating a broad-based buying trend across the market.

After plunging last week due to the shock of weak employment data, the US stock market succeeded in reversing sentiment as buying interest returned on expectations of a Fed rate cut. The deterioration in employment figures was interpreted as a signal for a shift in Fed monetary policy, reviving investor sentiment. According to CME FedWatch, as of this day, the probability of the Fed cutting its benchmark rate by 0.25 percentage points in September soared to 92.1%. This is nearly a 30 percentage point jump from 63.1% a week earlier. This led to bargain hunting, which helped lift the stock market.

However, tariff uncertainties have resurfaced. President Donald Trump has announced plans to impose additional tariffs of 10-41% on major trading partners starting August 7, and rising tariffs on Indian imports have further heightened tensions.

Buoyed by the strength of US tech stocks on expectations of a Fed rate cut, the domestic stock market is also expected to start higher. Regarding the tax reform plan, negative assessments continue from both foreign investment banks and ruling party members over the tightening of major shareholder capital gains tax requirements, and a compromise is being proposed. As a result, this issue is expected to influence the stock market throughout the week.

Han Ji-young, a researcher at Kiwoom Securities, advised, "The specific details of the (major shareholder capital gains tax requirements) are expected to be released after August 7, so until the government's position is officially confirmed, it is advisable to refrain from overreacting to tax-related uncertainties."