[Good Morning Stock Market] Despite Mention of 'Zero Interest Rate,' Market Remains Cautious... "The Issue Is Investor Sentiment"

[Asia Economy Reporter Oh Joo-yeon] The KOSPI closed lower on the 17th, barely holding above the 2400 mark, while the U.S. New York stock market also declined, with the Nasdaq index falling 1.27%, followed by the Dow Jones Industrial Average and the S&P 500 dropping 1.47% and 0.84%, respectively. Recent adjustments are explained as being driven more by psychological factors than by fundamental (corporate earnings) variables. Although the U.S. central bank, the Federal Reserve (Fed), announced it would maintain low interest rates through 2023, it did not provide enough expectations for further rises due to increased valuation burdens in the stock market. Economic uncertainty is also a factor dampening investor sentiment.

On the 14th, the KOSPI index opened at 2,418.33, up 21.64 points (0.90%) from the previous trading day, continuing its strong trend. Dealers are busy working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Moon Honam munonam@

◆ Sangyoung Seo, Researcher at Kiwoom Securities: The Korean stock market fell 1.2% the previous day due to the increase in new COVID-19 cases in the U.S., vaccine-related controversies, and the Fed's cautious stance on additional liquidity supply. Meanwhile, the U.S. stock market experienced increased volatility in large tech stocks ahead of the futures and options expiration date (the 18th), with the Nasdaq falling as much as 2.4% intraday, which weighed on the Korean market. However, considering that the decline was mainly due to individual issues within the U.S. and that some of this was already priced in the previous day, the impact is expected to be limited.

However, given the significant increase in call options on large tech stocks ahead of the U.S. futures and options expiration, the index has been showing adjustments since the previous day’s FOMC meeting, making increased volatility in the U.S. stock market due to option liquidation inevitable. In particular, even during recent Nasdaq corrections, call option purchases on some stocks that led the rise increased, raising the likelihood of heightened volatility in the U.S. market on Friday. Considering this, the market is expected to continue a stock-specific trend influenced by individual stock issues, with the index direction likely determined by foreign investors’ futures trends, which have recently driven index changes.

◆ Kyungmin Lee, Researcher at Daishin Securities: It is true that the Fed expressed a sufficiently dovish and market-friendly stance. It emphasized maintaining zero interest rates through 2023 and expanding asset purchases to consistently provide a safety net for asset markets, also highlighting sufficient policy response capacity if uncertainties increase. With concerns about preemptive monetary policy normalization gone, the Fed can be expected to play the role of a deflation fighter.

Nevertheless, the reason for the stock market’s reversal and increased decline lies in investor sentiment and supply-demand changes. Investors perceived no surprising monetary policy events beyond the Jackson Hole meeting and saw the Fed’s stance as a reiteration of existing positions. Without a short-term booster for gains, expectations turned into disappointment, leading to profit-taking sales.

The rebound in the dollar and bond yields, uncertainty about the speed of economic recovery, and ongoing difficulties in congressional agreement on additional stimulus policies are factors that dampen investor sentiment. This psychological unease also affects Asian stock markets.

◆ Jaeseon Lee, Researcher at Hana Financial Investment: Next week, the domestic stock market is expected to be in a cautious phase due to uncertainty over the passage of U.S. fiscal policy. However, the relatively favorable pace of fundamental recovery in China is likely to act as a factor supporting the market’s downside.

An event likely to attract market attention is the passage of the fifth U.S. congressional stimulus package, which Chairman Powell also mentioned as necessary. U.S. fundamentals are showing a partial recovery. Business sentiment indicators such as the ISM manufacturing index are improving, but domestic demand recovery remains relatively slow due to ongoing COVID-19 spread. Core retail sales for August, reflecting the first month after unemployment benefits were halted in July, decreased by 0.1% month-on-month, marking a decline after four months. The Federal Emergency Management Agency expects that the additional $300 weekly unemployment benefits implemented by Trump’s executive order will last for about six weeks.

As expectations for policy fade, the stock market is likely to undergo a process of digesting profit-taking sales. However, in emerging markets, attention should be paid to the faster pace of fundamental improvement in China compared to developed countries. China has observed a turnaround in consumption indicators for the first time in eight months. The yuan has also been strengthening continuously since August. South Korea has a high proportion of intermediate goods exports to China, making it one of the emerging countries with strong export and currency linkages to China. If favorable currency flows and overall export improvements due to a recovery in exports to China continue, this could provide additional momentum for the stock market.

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