[Good Morning Stock Market] "Mid-August Will Bring Volatility Led by Nasdaq"

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[Asia Economy Reporter Kum Bo-ryeong] The Nasdaq index has experienced a rise comparable to the dot-com bubble. Since forming a bottom in mid-March, it has risen for about four and a half months without significant correction. As a result, there are forecasts that volatility led by the Nasdaq index will emerge around mid-August. Meanwhile, analyses have also pointed out that the increasing U.S. fiscal deficit should be taken into consideration as a potential burden.

◆ Moon Nam-jung, Researcher at Daishin Securities = The change in the stock market brought about by the novel coronavirus infection (COVID-19) is that the market did not move according to existing patterns. Since forming a bottom on March 23, the market has risen for nearly four and a half months without major correction (60.5% as of August 12), leading to comparisons with the dot-com bubble period from 1995 to 2000.

The current stage of bubble controversy surrounding the Nasdaq index corresponds to the bullish phase from October 19, 1999, to March 10, 2000, which lasted 4.6 months and saw an 87.8% increase. Considering that the current Nasdaq index, which has shown the second-largest rise in U.S. stock market history after the dot-com bubble, is operating in a less favorable investment environment this year, it is judged that it cannot match the returns of the dot-com bubble period. Therefore, around mid-August, when the number of days of similar rise is reached, a correction (price adjustment with an eye on further rise) is inevitable.

It will be difficult for the current Nasdaq index to surpass the returns of the only bubble controversy period in U.S. stock market history without a convincing driver, especially as COVID-19 continues to spread. First, the origins of the past dot-com bubble and the current COVID-19-driven stock price rise differ. Unlike the dot-com bubble, which was born from the emergence of the internet creating new industries, COVID-19 has led to changes in existing daily life (non-face-to-face interactions + convergence of existing industries). Also, while stock price rises during economic booms are somewhat acceptable, the current Nasdaq index rise rate, which is as high as during the dot-com bubble despite the inevitable economic contraction in the U.S. this year, suggests that the market is near a peak and should prepare for possible corrections based on the dot-com bubble case.

The price correction in the U.S. stock market from mid-August to mid-September was only a matter of timing, and market participants were somewhat aware that this phase was inevitable. What will be more important is whether the upcoming fourth quarter has momentum to drive stock market gains.

◆ Kim Ye-eun, Researcher at IBK Investment & Securities = The scale of the U.S. fiscal deficit has rapidly increased since COVID-19. This is due to stimulus measures implemented by the U.S. Congress to defend against economic slowdown caused by COVID-19. Additionally, tax benefits from the Trump administration also had an impact. Although the fiscal deficit in July sharply decreased compared to June due to the extension of the tax filing deadline, the overall fiscal deficit has significantly increased due to economic activity contraction and stimulus measures.

Currently, the U.S. Republican and Democratic parties continue to have disagreements over additional stimulus packages. As the fiscal deficit grows, the deadlock in negotiations is becoming even harder to resolve. While government stimulus is indeed necessary to defend against economic slowdown, tax revenues are decreasing, and the 2021 fiscal year tax revenues are expected to decline further. Therefore, although expectations for government stimulus are rising, the burden from the increasing fiscal deficit must also be kept in mind.

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