[Good Morning Stock Market] "Rising Expectations for Additional US Fed Stimulus"

Jerome Powell, Chair of the Federal Reserve (Photo by Reuters)

[Asia Economy Reporter Kum Boryeong] Although concerns about economic contraction due to the resurgence of the novel coronavirus infection (COVID-19) are emerging, there is also an analysis that expectations are rising that the U.S. Federal Reserve (Fed) will resolve the situation. Recently, Fed officials have been making remarks that raise expectations for additional stimulus measures. Meanwhile, the global stock market next year is expected to have a strong first half, but there is also a forecast that a significant correction with a large decline may occur in the second half.

◆ Sangyoung Seo, Kiwoom Securities Researcher = On the 17th (local time), the U.S. stock market showed a characteristic of narrowing losses despite slowing consumption, supported by remarks from Fed officials that raised policy expectations. Raphael Bostic, President of the Atlanta Federal Reserve Bank, stated early in the session, "The spread of COVID-19 is leading to a contraction in production and consumption activities, raising concerns, so the Fed will weigh the necessity of additional bond purchases," which increased expectations for further Fed stimulus. Additionally, Fed Chair Jerome Powell said during the session, "With the rapid increase in COVID-19 cases, there is still a long way to go, and both fiscal and monetary policy support are still needed for economic recovery, and patience is required for interest rate hikes." Furthermore, the market showed a stock-specific trend with distinct fluctuations in stocks with individual issues such as Amazon and Tesla. Considering this, the Korean stock market is also unlikely to show a clear direction and is expected to have a high possibility of a stock-specific market.

Meanwhile, concerns persist that stimulus measures may not pass before the Biden administration takes office, which is a burden. However, it is positive that Fed officials have continued to raise expectations for additional stimulus measures today as well as yesterday. Market participants are responding with hopes that the Fed may expand the scale of Treasury purchases from $80 billion to $120 billion.

Ultimately, the market is highlighting concerns about economic contraction due to the COVID-19 resurgence, but it is showing a solid performance with the expectation that the Fed will solve everything. Considering this, the Korean stock market is expected to experience a stock-specific market that changes according to individual stock issues, and the index direction is forecasted to be determined by the recent movements of foreign investors leading the market.

◆ Seokjung Park, Shinhan Financial Investment Researcher = The global stock market next year is expected to see earnings recovery exceeding expectations. During the earnings-driven market phase, the Fed’s maintenance of zero interest rates and the effects of large-scale fiscal stimulus are expected to be confirmed. After a volatile market at the end of this year, it is judged that the market can return to a bull market in the first half of next year.

However, economic recovery is likely to result in limited upside and intensified differentiation. After a cyclical recovery, accumulated risks may be exposed. There is a possibility that U.S. interest rate increases and credit risks may accompany in the price-burdened phase. Although uncertain, the possibility of a significant correction with a large decline in the global stock market in the second half should also be kept in mind.

Looking at countries individually, a K-shaped earnings recovery differentiation is unfolding. The relative superiority of the U.S., China, Korea, and Taiwan, which showed solid fundamentals in 2020, is expected to continue until next year. The commonality among these countries is a high proportion of manufacturing and tech sectors and securing differentiated earnings momentum within advanced and emerging markets. Countries such as Germany, ASEAN, and Brazil, which performed poorly this year, have rebound momentum, making a trading perspective approach possible.

However, it is necessary to keep in mind the possibility of further downward revisions of earnings estimates for France, the U.K., Italy, and Russia, which have a high proportion of sensitive stocks and service sectors.

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