[Good Morning Stock Market] US Stocks See Profit-Taking Sell-Off Triggered by Bitcoin Plunge

Stimulating Profit-Taking Desire Since Late Last Year
Increased Inflation Possibility Draws Attention to Beneficiary Industries

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market closed lower as profit-taking emerged. The price of Bitcoin, a leading cryptocurrency that has become a major volatility indicator, plunged more than 20% at one point, stimulating the profit-taking desire that has been a hot topic since the end of last year.

On the 11th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 31,008.69, down 0.29% from the previous trading day. The S&P 500 index fell 0.66% to 3,799.61, and the tech-heavy Nasdaq index dropped 1.25% to 13,036.43.

◆ Sangyoung Seo, Kiwoom Securities Researcher = Recently, Bitcoin showed a rapid surge from $20,000 to over $40,000 in less than a month due to several factors, including the inflow of large institutional investors. Additionally, JP Morgan's announcement that Bitcoin could reach $146,000 by competing with gold as an alternative currency also contributed to the rise. However, as profit-taking selling appeared, the price recorded the low $30,000s during the session and fell nearly 20% at one point.

This increased the desire for profit-taking across the financial markets. It exerted selling pressure mainly on large technology stocks that had risen sharply last year. Not only in the stock market but also in the foreign exchange market, profit-taking selling against the euro led to a stronger dollar, triggering selling across the bond market and the broader financial markets.

However, the decline narrowed following news that U.S. President-elect Joe Biden would announce more guidance on stimulus measures on the 14th. In particular, the Russell 2000 index, which focuses on small and mid-cap stocks, turned positive. Furthermore, when the New York Federal Reserve mentioned the possibility of long-term inflation in its December consumer expectations report, inflation-benefiting sectors such as financials, steel, and energy showed strength, reducing the decline. Some companies that announced clinical data and collaborations at the JP Morgan Healthcare Conference also surged, influencing the market.

Meanwhile, the index widened its losses again near the close, which is presumed to be due to remarks by Raphael Bostic, President of the Federal Reserve Bank of Atlanta, on the 5th, stating that if the economy rebounds strongly as expected this year, a 'recalibration' or reduction in bond purchases could occur. Considering this, attention should be paid to the remarks of Federal Reserve Chairman Jerome Powell and other Fed officials scheduled for this week on the 14th.

Ultimately, the U.S. stock market showed increased profit-taking desire, but buying interest flowed mainly into stocks with positive news. Considering this, it is expected that the Korean stock market will also show sector differentiation, with strength centered on inflation-benefiting sectors rather than the index after a lower start.

◆ Taehyun Seol, DB Financial Investment Researcher = The average daily trading volume of the domestic stock market, which was about 5 trillion won in 2019, exceeded 10 trillion won daily in March last year when the stock index rebounded after the shock of the novel coronavirus (COVID-19). In December last year, it reached 18 trillion won daily. After the KOSPI surpassed 3,000, the daily trading volume exceeded 40 trillion won for two consecutive trading days.

Looking at the daily trading volume since January 2000, one can feel the eagerness of market participants to grow assets through the stock market. Even when examined by the ratio of trading volume to market capitalization, it is an exceptional situation exceeding +3 standard deviations. However, such situations have occurred occasionally in the past. They were mainly observed in the early 2000s and also confirmed during the bull market after the 2008 global financial crisis.

At the time of a sharp rise in trading volume relative to market capitalization in the past, the average stock index return 20 trading days later was 2.5%, and the proportion of positive returns was about 70.1%. Although there is some concern about the speed as the KOSPI rose nearly 120% in about 10 months from the low in March last year, the supply and demand of individual investors, who have driven the market during this period, remain alive.

The supply and demand of individual investors have become more important, and investment considering the growth potential of individual stocks is necessary. The market continues to be led by individual investors rather than foreigners. Since January last year, the cumulative net buying amount of individual investors has steadily increased. It is necessary to examine how individual investors' interest changed around the period from the end of September to the end of November last year, when individual investors' supply and demand paused for about two months. During the rebound phase after the COVID-19 shock, individual demand concentrated on sectors such as software, semiconductors, and automobiles. Since November last year, with news of COVID-19 vaccine development and growing expectations for economic and earnings normalization, funds have flowed into sectors such as semiconductors, automobiles, and consumer staples.

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