[Good Morning Stock Market] US Stock Market Linked to Economic Normalization Speed... "Leading Stocks Are Growth Stocks"

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[Asia Economy Reporter Kum Boryeong] It has been revealed that the U.S. stock market is linked to the pace of economic normalization following the shock of the novel coronavirus disease (COVID-19). Along with this, there is an analysis that global stock market leaders are still growth stocks.

◆ Moon Namjung, Researcher at Daishin Securities = The U.S. stock market’s recovery pattern from the COVID-19 shock can be broadly divided into two stages. The first stage was a rebound phase driven by a buyback surge due to an overreaction following the March low point formation through April. The second stage, from May to the present, has been a rising phase led by expectations of economic recovery through the resumption of economic normalization. In fact, the resumption of economic normalization first impacted sentiment indicators, with the June ISM Manufacturing PMI (52.6) entering the expansion zone for the first time. Since this indicator raised expectations for the recovery of the U.S. manufacturing economy, it became a gentle upward trigger for the U.S. stock market, which had an ambiguous direction until before July.

Until before July, the domestic spread of COVID-19 in the U.S. was overshadowed by expectations of future economic recovery through normalization and news of vaccine development, having little impact on stock market trends. Starting in August, with the onset of the full summer vacation season, the speed of COVID-19 spread is likely to accelerate compared to before, increasing the possibility of a slowdown in the pace of U.S. economic normalization. Weekly employment figures began to decline in July, and the University of Michigan Consumer Sentiment Index also started to slow down, signaling a contraction in future consumer sentiment.

Since the U.S. driving season continues until Labor Day in the first week of September, third-quarter economic indicators are likely to show a slower improvement pace under the influence of COVID-19 compared to the second quarter. The role of economic indicators, which had been a momentum for stock market rises based on recovery expectations, is expected to shift to increasing downward pressure on the stock market throughout August. If the stock market declines in August, it is highly likely to pre-reflect the negative impact of COVID-19 in the third quarter. Upon confirming the bottom, momentum for the U.S. stock market could come from expectations for the next administration’s policies through the U.S. presidential election in the fourth quarter in the longer term, or from a weakening of COVID-19 spread intensity compared to the previous month and economic indicator improvements starting in September in the shorter term. Therefore, it is necessary to actively increase exposure to the U.S. stock market, focusing on representative untact (contactless) technology stocks.

◆ Lee Kyungmin, Researcher at Daishin Securities = The strength of cyclical stocks and value stocks in July is clear. Looking at sector returns in July, sectors sensitive to the economy and with attractive valuations such as steel, machinery, display, securities, automobiles, non-ferrous metals, and wood significantly outperformed the KOSPI. On the other hand, growth stocks underperformed. Although the secondary battery-related sector (chemicals), which benefited from expectations of the Korean New Deal policy, and the healthcare sector (pharmaceuticals and bio), which benefited from expectations of COVID-19 vaccine and treatment development, showed strength, the software sector underperformed the KOSPI by 1 percentage point.

It is true that we are getting closer step by step to the commercialization of treatments and vaccines, and that development could happen sooner than expected. However, to accurately evaluate the efficacy of treatments and vaccines, phase 3 clinical trial results must be observed. It will also take considerable time for global commercialization. Whether economic activities will recover to pre-COVID-19 levels after commercialization of treatments and vaccines remains uncertain. It will take significant time to link expectations for treatment and vaccine development to a sustained rise in cyclical and value stocks. The strength of cyclical and value stocks in July is judged as a technical rebound in terms of relative price adjustment and rotation with growth stocks. It is seen as a result of relative price merit combined with policy and industry improvement expectations.

Global stock market leaders are still considered growth stocks. In the Korean stock market, the strategy to increase weights in internet, secondary batteries, semiconductors, and pharmaceutical & bio sectors is maintained. Leaders lead the market during an uptrend and tend to have larger declines during short-term corrections. Sectors or stocks that show strength during short-term price adjustment phases in an uptrend cannot be considered leaders. This is more reasonably viewed as a price gap reduction in terms of rebound of neglected stocks and rotation. It is worth remembering that during the uptrends from 2004 to 2007 (China-related stocks), 2011 (Cha-Hwa-Jeong), and 2017 (IT), the leaders were never replaced.

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