[Good Morning Market] Stock Market Plunges on "Warsh Shock," Expected to Rebound on Bargain Hunting and Strong U.S. Data

Kevin Warsh Shock: Concerns May Be Overstated
Strong U.S. Manufacturing PMI and Palantir Earnings
"KOSPI Momentum Remains Solid... Prepare for a Market Rebound"

On February 3, the day after the "Kevin Warsh-triggered" stock market crash, the domestic stock market is expected to rebound, supported by bargain hunting and strong U.S. manufacturing data.

On the previous day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 49,407.66, up 515.19 points (1.05%) from the previous session. The S&P 500 index rose 37.31 points (0.54%) to 6,976.44, and the Nasdaq Composite climbed 130.29 points (0.56%) to finish at 23,592.11.

Yonhap News

Analysts say that despite volatility in gold, silver, and other precious metals due to uncertainty surrounding Kevin Warsh, the next Federal Reserve (Fed) Chair, the U.S. stock market rebounded. This was attributed to a surprise in the January Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI), expectations for strong earnings from large information technology companies, and gains led by memory chipmakers such as Micron.

Previously, after Warsh was designated as the next Fed Chair, interpretations of his policy stance based on his past remarks diverged, leading to increased market volatility. Warsh is known for advocating both interest rate cuts and balance sheet reduction (quantitative tightening) simultaneously. Therefore, the securities industry believes that until the U.S. Senate confirmation process in March, noise related to the next Fed Chair could continue to affect the stock market. However, some analysts point out that concerns about Warsh may be exaggerated, noting that the Fed tends to rely on data rather than the views of any individual chair.

In this context, the January manufacturing PMI surged from 47.4 in the previous month to 57.1, a surprising jump that confirmed robust real demand in the United States. Additionally, Palantir delivered an earnings surprise and raised its guidance, soaring more than 5% in after-hours trading. This helped ease concerns about profitability in artificial intelligence (AI) and alleviated some of the uncertainty triggered by Warsh.

The previous day, the domestic stock market experienced "panic selling" due to the Warsh shock and a plunge in precious metal prices. The KOSPI dropped 5.26%, falling below the 5,000 mark, while the KOSDAQ closed down 4.44% at 1,098.36.

Han Ji-young, a researcher at Kiwoom Securities, predicted, "Today, the market is expected to rebound, driven by a calming of volatility related to the next Fed Chair, the U.S. ISM manufacturing PMI surprise, Palantir's earnings surprise, and the influx of bargain hunters following yesterday's sharp decline."

Han emphasized that the previous day's decline in the domestic stock market was different in nature from past "historic crashes." He explained, "The number one event, the 2024 yen-carry trade crisis, the second, the COVID-19 pandemic in 2020, and the third, the aftermath of the U.S. credit rating downgrade in 2011, were all triggered by unexpected black swan events and concerns about systemic risk. In contrast, the cause of the recent 5.3% drop differs in terms of continuity and intensity compared to those past events."

At the same time, Han viewed positively that the factors which propelled the KOSPI past the 5,000 mark remain intact. The consensus for KOSPI operating profit in 2025 has been revised upward by 31% in just one month, from 427 trillion won at the end of December last year to 564 trillion won as of this month. There is also potential for further upward revisions, especially centered on semiconductors. Han said, "The narrative and performance of leading stocks, especially in semiconductors such as the memory supercycle, combined with low valuation pressure, remain unchanged. Stock price resilience is solid, and it is appropriate to base response strategies on the expectation that the market will return to an upward trajectory."