After the Lunar New Year Holiday, Will the Stock Market Continue the 'Risk On' Trend?

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[Asia Economy Reporter Kim Eunbyeol] The domestic stock market, which surged sharply from the beginning of the year, is closed for four days due to the Lunar New Year holiday, and investors are busy trying to predict the market direction after the holiday. Experts expect the 'Risk On' trend to continue, but they also acknowledge that the market is overheated, and believe that the market may move sensitively for the time being depending on the pace of economic recovery and corporate earnings.

According to a compilation of opinions from economic experts on the 13th, liquidity is still abundant in the market, so the 'Risk On' phenomenon is expected to continue for the time being. Considering the abundant liquidity environment stemming from the monetary policies of central banks worldwide and the accelerated distribution of vaccines domestically and internationally, the overall direction of stock prices is expected to maintain an upward trend.

Moon Namjung, Global Strategist at Daishin Securities, stated, "The possibility of economic recovery slowing down or disappearing is still low," adding, "Leading signals that imply a sharp market decline remain in the 'Risk On' phase." He explained that the additional $1.9 trillion stimulus package promoted by President Joe Biden and the Federal Reserve's support for economic recovery are all positive factors.

According to Moon's analysis, leading signals that can gauge irrational overheating among investors are below the critical thresholds that indicate a sharp market decline. The yield on the 10-year U.S. Treasury bond is currently in the low 1% range, significantly below the average yield of 1.92% during the tapering mention period in May 2013. The U.S. OECD Leading Economic Index for December (99.2 points) is below the baseline of 100, which could influence a market downturn.

In fact, the U.S. stock market's movement during the holiday has not been bad. On the 12th (local time), the Dow Jones Industrial Average closed at 31,458.40, up 27.7 points (0.09%) from the previous session at the New York Stock Exchange. The Standard & Poor's (S&P) 500 index rose 18.45 points (0.47%) to 3,934.83, and the tech-heavy Nasdaq index closed at 14,095.47, up 69.7 points (0.5%).

All three major indices set record closing highs. Considering President Joe Biden's stimulus package, solid corporate earnings, and the slowdown in the spread of COVID-19 in the U.S., opinions in the U.S. market suggest that there will be no significant negative factors for the time being.

However, since the market has shown excessive strength based on recent expectations alone, there is also an opinion that the market may enter a sideways phase while confirming economic indicators.

First, stock prices are expected to remain strong until the first half of this year, but if corporate earnings during the transition to an earnings-driven market turn out to be worse than expected, the market may face a correction.

Rising market interest rates are also a burden on the stock market. If long-term interest rates continue to rise, it could eventually trigger tapering concerns, negatively impacting the stock market. Inflation concerns are also a factor that could push interest rates higher. Recently, crude oil prices have surged, which could act as an upward pressure on inflation rates.

Analyst Moon said, "Since the era of rational overheating has begun, investment priority should be placed on stocks," adding, "If market volatility increases due to noise that raises volatility during the upcoming bullish phase, it should be used as an opportunity to increase allocation." He also forecasted a high-first, low-later trend until the second quarter based on economic conditions, earnings, supply and demand, and policies.

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