[Good Morning Stock Market] "Tech Stocks in Correction Phase... Contact Stocks Gaining Attention"

Delay in Stimulus Agreement and Stock Bubble Concerns Weigh on Tech Stocks↓
Contact Stocks Maintain Strength for a Month, Untact Stocks Weaken

[Asia Economy Reporter Minji Lee] As investment sentiment in technology stocks related to non-face-to-face (untact) sectors weakens, interest in contact (cyclical and value stocks) is growing. With the downgrade of social distancing to level 1 and the resumption of economic activities, there are also forecasts that corporate earnings could improve further next year. On the 14th (local time), the U.S. stock market closed lower than the previous day as technology stocks adjusted amid expectations for a pre-election stimulus package. On the New York Stock Exchange, the Dow Jones Industrial Average closed at 28,514.00, down 0.58% from the previous session. The S&P 500 and Nasdaq indices fell by 0.66% and 0.80%, respectively.

[Image source=Reuters Yonhap News]

◆ Sangyoung Seo, Kiwoom Securities Researcher = The U.S. stock market closed lower amid increased volatility centered on technology stocks. Although the securities industry raised expectations for technology stock earnings, the market fell from the previous day due to delays in stimulus package agreements and views that stock prices were excessive.

Looking at the number of new COVID-19 cases in the U.S., the 7-day average exceeded 50,000 for the first time in two months, indicating a continuing spread. This represents a 16% increase compared to last week and marks the ninth consecutive day of increase, fueling concerns about a winter resurgence.

Although additional stimulus is needed, on this day, U.S. Treasury Secretary Mnuchin suggested that “it will be difficult to reach a stimulus agreement before the election,” indicating that the agreement process is not smooth. Additionally, Fed Vice Chair Clarida stated that the U.S. economy will need another year to return to pre-COVID-19 levels and that the labor market will require even more time, further heightening market concerns.

◆ Jiwoo Lim, Korea Investment & Securities Researcher = The tuning of contact stocks has begun. Growth stocks are shaky, but value stocks are gradually rising. The market has continuously neglected value and cyclical stocks since the COVID-19 outbreak. Although there were brief rebounds around June and August, each time the COVID-19 resurgence issue flared up, the value stocks that had rebounded gave back all their gains. However, this time is different.

On the 12th, the government lowered social distancing from level 2 to level 1, focusing more on the need to resume the economy rather than perfect quarantine. Although the current number of confirmed cases does not meet the previously suggested distancing guidelines, the government is strongly conscious of resuming economic activities, citing public fatigue.

If the government maintains its current stance, the speed of consumption recovery is expected to accelerate. According to the Google Mobility Index, Korea had already recovered activity levels to those of early in the year before Chuseok, and with the easing of distancing, the pace of consumption recovery is expected to quicken further.

Expectations for year-end dividends are also rising. While it is true that dividend capacity has decreased due to earnings hits and uncertain conditions, dividend stocks’ prices have also been sluggish this year, so dividend yields are not expected to be significantly impaired. The base effect in 2021 is also positive. However, for the energy sector, which has traditionally been a high-dividend stock, the expected cash dividend yield is estimated to have somewhat decreased.

With the IMF revising upward its economic growth forecast, expectations for economic reopening are also increasing. As economic reopening continues, expectations for recovery in contact stocks will inevitably rise. According to the IMF’s October World Economic Outlook, the forecast was revised up to -4.4% from the -5.2% figure presented in June. Korea (-1.9%) also saw its forecast revised upward along with major countries.

Inventory rebuilding is also expected as the economy normalizes. Although inventory burdens remain due to incomplete recovery from the COVID-19 impact, if consumer spending rebounds rapidly after lockdowns are lifted, retail and wholesale inventories are expected to return to previous levels. In China as well, rapid recovery from COVID-19 effects has led to inventory accumulation movements in steel and other materials.

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