[Good Morning Stock Market] "Earnings Season Stock Prices Should Be Evaluated by Earnings... Focus on Growth and Momentum"

[Asia Economy Reporter Eunmo Koo] Liquidity expansion, expectations of economic indicator improvements, and bullish market sentiment are all variables that positively influence the stock market outlook. However, since corporate stock prices during earnings season are evaluated based on their earnings, there is an analysis suggesting the need to select companies through the intersection of growth and momentum.

◆Jaeman Lee, Researcher at Hana Financial Investment=Excluding the period from February to April during the COVID-19 pandemic, what differences can be observed when comparing the returns of months with corporate earnings announcements (January, April, July, October) to other months since 2015?

In the U.S. stock market, as usual when there are no earnings announcements, growth stocks within the S&P 500 index (3.5% vs. S&P 500 index 2.3%) and momentum style indices (3.3%) show the highest returns. However, during this phase, the monthly average returns of quality and value style indices are also positive. It is important to note that the situation changes during months with earnings announcements. Not only is the monthly average return of the momentum style index (2.1%) higher than that of growth stocks (2.0% vs. 0.7%), but only these two style indices record positive returns. Dividend, value, and quality style indices, including the S&P 500 index, all recorded negative returns.

Although liquidity expansion, expectations of economic indicator improvements, and bullish market sentiment are all variables that positively influence the stock market outlook, stock prices during earnings season are evaluated based on earnings. During earnings season, it is necessary to select companies through the intersection of growth and momentum.

The U.S. stock market's earnings growth rate for Q2 2020 is expected to record negative growth both quarter-over-quarter and year-over-year. This is a result of the COVID-19 pandemic situation. However, the Q3 earnings growth rate is expected to increase by more than 30% quarter-over-quarter due to the base effect. Nevertheless, it remains negative on a year-over-year basis.

Ultimately, momentum will be an important criterion based on whether net income estimates for Q2 and Q3 have been recently revised upward together, and growth requires attention to companies whose Q3 net income estimates can record positive growth both quarter-over-quarter and year-over-year.

◆Sangyoung Seo, Researcher at Kiwoom Securities=The U.S. stock market rose in the morning session following positive news related to vaccines. However, in the afternoon, Tesla, which had led the rise with a surge of over 16%, turned downward, and rapid profit-taking inflows caused most of the stocks that had driven the U.S. market's rise to decline. This raises concerns about the possibility of selling pressure on the stocks that had driven the Korean stock market's rise, which is a burden.

Meanwhile, attention should be paid to China's import and export statistics. Amid recent frictions related to TikTok and Hong Kong, concerns about the U.S.-China trade dispute have increased, and China's import volume from the U.S. is expected to attract attention. This is because recently, U.S. President Donald Trump and Larry Kudlow, Chairman of the U.S. White House National Economic Council (NEC), claimed, "We are watching because China said it would abide by the first-phase agreement." Additionally, exports and imports are still expected to decline compared to the previous year, which is judged to cause a contraction in investment sentiment. Considering these changes, the Korean stock market is expected to experience a day with high volatility in individual stocks, similar to the characteristics of the U.S. market in the afternoon session.

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