[Good Morning Market] KOSPI Expected to Open Higher on Growing U.S. Rate Cut Hopes

On December 4, the KOSPI is expected to open higher as expectations for a U.S. interest rate cut grow.

On the previous day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 47,882.90, up 408.44 points (0.86%) from the previous session. The S&P 500 Index rose 20.35 points (0.30%) to 6,849.72, and the Nasdaq Composite Index finished at 23,454.09, up 40.42 points (0.17%).

The New York stock market closed higher, driven by heightened expectations for a Federal Reserve rate cut amid weak ADP private employment data and a slowdown in both the employment and price indices within the Institute for Supply Management (ISM) services sector report. However, during the session, news of Microsoft lowering its sales targets for artificial intelligence (AI) products weighed on investor sentiment toward big tech stocks, leading to a rotation of funds into cyclical and small- to mid-cap stocks.

Due to the government shutdown, the release of the U.S. November nonfarm payrolls report has been postponed to the 16th. As a result, the ADP private employment report has emerged as a key indicator for gauging the Fed's monetary policy direction. Last month, ADP private employment fell by 32,000, significantly missing both market expectations (an increase of 10,000) and the previous month's figure (an increase of 47,000), marking the largest decline in about two years and eight months.

In contrast, the ISM Services Purchasing Managers' Index (PMI) for November improved slightly to 52.6 from 52.4 the previous month, maintaining its expansionary trend. However, the employment index remained in contraction territory at 48.9, below the baseline of 50, while the price index plunged to 65.4 from 70.0 the previous month.

This combination of weakening employment and slowing inflation has significantly boosted market expectations for a Fed rate cut. Recently, expectations have been further fueled by the emergence of Kevin Hassett, a member of the National Economic Council (NEC) known for his dovish stance on rate cuts, as a leading candidate for the next Fed Chair. According to Fed Watch, the probability of a rate cut in December has risen to 89%.

On this day, news related to AI also contributed to market volatility. Rumors that Microsoft (MS) had lowered its AI product sales targets led to a 2.5% drop in its share price, negatively impacting sentiment toward technology stocks. However, Microsoft responded by stating, "There has been no downward adjustment to the total allocation of AI product sales," which helped ease some concerns.

With both positive and negative news surrounding AI, the upcoming earnings announcement from Broadcom on December 11 is being highlighted as a major event that could determine AI investment sentiment for the month.

In the domestic stock market, expectations for a rate cut are likely to drive gains, particularly among growth stocks and bio stocks that benefit from lower rates. Lee Sunghoon, a researcher at Kiwoom Securities, stated, "As we approach the end of the year and the beginning of the next, the impact of new government policies is likely to become more pronounced." He added, "Policy momentum remains strong, including the recently passed 2026 budget-related bill (which includes separate taxation of dividend income), the third amendment to the Commercial Act mandating treasury stock cancellation, and policies to revitalize the KOSDAQ market."

He further advised, "While maintaining allocations in traditional leading sectors such as semiconductors with solid earnings momentum, in the short term, investors may seek opportunities for excess returns by trading stocks that benefit from government policy."