[Good Morning Stock Market] US Stocks Rebound on Bank Regulation Easing vs Lingering COVID Concerns

New York Stock Market Closes Up Over 1%... Volcker Rule Regulation Eased
COVID-19 Concerns Persist, but Domestic Market Already Reflected Previous Day... Down Over 2%
On 26th, Market Expected to Remain Strong Amid Earnings Differentiation

[Asia Economy Reporter Oh Ju-yeon] On the 25th (local time), the U.S. stock market partially recovered from the previous day's decline and closed with gains in the 1% range. The Dow Jones Industrial Average rose 1.18% from the previous trading day to close at 25,745.60, the S&P 500 increased 1.1% to 3,083.76, and the Nasdaq also rose 1.09%, surpassing the 10,000 mark again.

Recently, concerns over the resurgence of COVID-19 caused the stock market to retreat significantly, but on this day, the market reacted to news of regulatory easing on the so-called 'Volcker Rule,' which the U.S. introduced to prevent high-risk investments by banks.

On the 26th, the domestic stock market is expected to show resilience centered on stocks with high expectations for earnings improvement. This is because concerns about the spread of COVID-19 were already reflected in the previous day. However, without the development of vaccines or treatments, concerns about COVID-19 are likely to persist, and since the KOSPI has entered a price range with increased burden, the market is expected to show volatility for the time being.

On the 17th, the KOSPI index opened at 2,133.18, down 4.87 points (0.23%) from the previous trading day, fluctuating around the flat line as dealers were working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Moon Honam munonam@

◆ Han Dae-hoon, SK Securities Researcher = Concerns about a second wave of COVID-19 are growing. The number of new confirmed cases in several U.S. states including California, Texas, and Arizona has reached record highs. The weekly number of COVID-19 cases in the U.S. surged about 30% compared to the previous week. Calls for economic activity lockdowns are also increasing. Reflecting this, the International Monetary Fund (IMF) lowered its global economic growth forecast for this year by 1.9 percentage points to -4.9%. Concerns about trade conflicts have also intensified. There are unusual tensions between the U.S. and China, and the U.S. has hinted at imposing tariffs on Europe and Canada as well. Concerns about a contraction in global trade, combined with the second wave of COVID-19, could lower expectations for economic recovery.

Economic activity contraction is inevitable. What has dispelled these concerns is the policy coordination of central banks worldwide, including the Federal Reserve (Fed). Despite various negative factors and concerns, the stock market has held up due to liquidity. It has ignored worries about recession and poor corporate earnings. While concerns about the economy and corporate earnings remain, the market has quickly rebounded thanks to liquidity, entering a price range with high burden. The second wave of COVID-19, concerns about economic activity lockdowns, and trade conflicts involving the U.S. and China could trigger selling pressure.

However, the possibility of a sharp drop like in March is considered low due to liquidity. The fact that nearly 31 trillion won in subscription deposits poured into SK Biopharm's public offering shows that liquidity is abundant in the market. There is also a learning effect from the previous sharp decline. Nonetheless, the importance of employment indicators, which serve as a gauge for whether economic activity will resume amid the second wave of COVID-19, will likely increase. Furthermore, the current situation is expected to deepen market concentration. The strength of existing leading stocks and sectors with expected future growth (such as ITSW and healthcare) is likely to continue. A positive view on these sectors is maintained.

◆ Seo Sang-young, Kiwoom Securities Researcher = The Korean stock market fell more than 2% the previous day as selling pressure emerged when the number of new COVID-19 cases in the U.S. exceeded record highs. Concerns persist as the Texas region halted additional economic reopening due to the spread of COVID-19, which is a burden. However, considering that this was already priced in the previous day and the European Central Bank (ECB) announced additional liquidity measures, the likelihood of continued correction is low.

That said, as the IMF pointed out, the gap between the real economy and financial markets is large, so the possibility of an expanded upward trend is also low. In particular, financial stocks that led the U.S. stock market's rise today are falling 1-3% in after-hours trading following the Fed's announcement of the financial sector's COVID-19 sensitivity. The domestic stock market is expected to show resilience mainly in stocks with high expectations for earnings improvement amid sectoral and stock-specific differentiation, similar to the characteristics of the U.S. market.

Meanwhile, next week, manufacturing indicators from China and the U.S. will be released, and since these are sentiment indicators, they are expected to be favorable. Additionally, the U.S. employment report, which is also expected to improve, is scheduled for release, which deserves attention. Although the minutes of the Fed's FOMC, which mentioned uncertainties about the second half economic outlook, will be released, excluding this, major economic indicators are expected to improve compared to the previous month, suggesting that the market may show resilience as it prepares for this.

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