[Good Morning Stock Market] "Economic Restart Still Premature"... US Stock Market Also Swings by Over 2%

Concerns Over Second Wave of COVID-19 Spread Lead to Decline in Major US Stock Markets
Growth Stocks Gain Attention as Economic Reopening Hopes Fade, Replacing Cyclical Sectors

[Asia Economy Reporter Minji Lee] Major U.S. stock markets fell by about 2% amid concerns over the resurgence of COVID-19 and incomplete economic reopening measures. The Nasdaq index, which had been rising alone, also declined. Additionally, the market is worried that conflicts between the U.S. and China could influence the future direction of global stock markets.

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◆ Kwanghyun Kim, Researcher at Yuanta Securities = As new confirmed cases have emerged domestically, concerns about a resurgence of COVID-19 are growing. Signs of resurgence are also appearing in China and Germany. Recently, cluster infections have reoccurred in the Wuhan area, and Germany, which had eased lockdown measures, is seeing a rapid increase in confirmed cases.

To determine the direction of the domestic stock market, one must look at the exchange rate and exports. Currently, the exchange rate stands at around 1,224 KRW, lower than this year’s peak (1,280 KRW on March 19). Considering the uncertainties related to COVID-19, further declines in the exchange rate are unlikely.

Exports are also worrisome. Last month, South Korea’s export value was $36.92 billion, the lowest since February 2016 ($35.92 billion). The year-on-year growth rate was 24%, the lowest since the financial crisis. The average daily export value up to May 10, announced on the 11th, also fell by 30% compared to a year ago.

Corporate earnings forecasts have also been revised downward, but it appears that sufficient adjustments have not yet been made. The second-quarter outlook has been revised down by 32.5% over 14 weeks since February. Although expectations for economic normalization in the second half are high, there are questions about the market’s forecasted 21% year-on-year earnings growth for the third quarter. The 60% growth rate for the fourth quarter is also considered unrealistic.

◆ Jaehyun Kang, Researcher at Hyundai Motor Securities = Since May, high-value growth sectors such as IT, communication, and healthcare have shown significant performance in the U.S. stock market. This contrasts with April, when cyclical sectors like energy, materials, industrials, and finance performed well.

This shift in trend is due to growing concerns that economic normalization may be delayed longer than expected. Until mid-April, it was anticipated that much of the economy would reopen by early May, but as COVID-19 continues to spread, it is expected to take quite some time before the situation is resolved. The market currently expects COVID-19 to be contained by late June or early July.

As a result, the upward momentum of cyclical sectors sensitive to economic and price recovery is slowing, while growth stocks, which can ease valuation burdens supported by more accommodative monetary policies, are gaining attention.

Therefore, if the current situation persists, the stock market is likely to continue a modest upward trend for the time being. The recently released U.S. core consumer price index for April recorded a 1.4% increase, 0.3 percentage points lower than market expectations. Concerns about deflation, which have been focused on, are also expected to act as a factor limiting the stock market’s upward momentum for the time being.

This content was produced with the assistance of AI translation services.