[Good Morning Market] South Korea-U.S. Summit Concludes Smoothly... Korean Stocks Expected to Open Lower and Remain Flat

Concentration of Short-Term Inflows in Select Sectors, Including Inter-Korean Economic Cooperation Stocks

With all major U.S. stock indices closing lower in New York, the Korean stock market is expected to open lower on August 26, influenced by uncertainty surrounding the tax reform plan and the outcome of the South Korea-U.S. summit.

Yonhap News Agency

On August 25 (local time) at the New York Stock Exchange, the Dow Jones Industrial Average closed at 45,282.47, down 349.27 points (0.77%) from the previous session. The S&P 500 Index fell 27.59 points (0.43%) to 6,439.32, while the Nasdaq Index dropped 47.24 points (0.22%) to 21,449.29. The Russell 2000 Index, which focuses on small- and mid-cap stocks, declined by 0.96%.

This weakness stemmed from concerns that the scale of interest rate cuts within the year may be smaller than previously expected. Jerome Powell, Chair of the Federal Reserve, stated in his Jackson Hole speech on August 22, "Policy is in restrictive territory and can be adjusted depending on the baseline outlook and changes in the balance of risks." His tone was more cautious compared to last year, when he said that "the direction of cuts is clear." As a result, the probability of a rate cut in September, as reflected in federal funds futures markets, surged to above 90% immediately after the speech but has since fallen to the low 80% range.

Additional pressure is coming from inflation indicators. The core Personal Consumption Expenditures (PCE) Price Index for July, to be released on August 29, is expected to have risen by 2.9% year-on-year, surpassing June's 2.8% and marking the highest level in five months.

By stock, major technology names such as Nvidia, Tesla, and Alphabet posted gains of more than 1%, while some stocks, including Intel, ended lower. By sector, most segments were weak except for communication services and energy. Consumer staples and healthcare fell by more than 1%. The Volatility Index (VIX) jumped by more than 4% from the previous day, reflecting heightened uncertainty.

Han Jiyeong and Lee Sunghoon, researchers at Kiwoom Securities, commented, "Given the possibility of rapid changes in rate cut expectations, stock price volatility is likely to increase, so in the short term, it may be wise to focus more on risk management than in July or August. From a mid-term perspective, the upward trend in stock prices remains valid for both the U.S. and Korea, so a strategy of buying in stages during corrections remains effective."

Despite the domestic market closing higher the previous day following the passage of the second amendment to the Commercial Act, it is expected to open lower today and maintain a stagnant trend, with sectoral differentiation likely. The market views the South Korea-U.S. summit as having concluded smoothly, with discussions on cooperation in shipbuilding, a potential North Korea-U.S. summit, and energy purchases. Han Jiyeong and Lee Sunghoon noted, "Rather than providing broad upward momentum to the entire market, the summit is expected to create short-term inflows focused on specific sectors and themes such as shipbuilding and inter-Korean economic cooperation stocks."

Kim Daejun, a researcher at Korea Investment & Securities, also stated, "Rather than seeing an overall unfavorable trend in the domestic market, we expect more active sector rotation. In particular, shipbuilding and energy, which were directly mentioned by President Trump, are attracting the most attention. Stocks related to North Korea could also face upward pressure." He added, "Export stocks heavily affected by tariffs are unlikely to show any significant movement."