[Good Morning Stock Market] US Rotation Market Ends Mixed... Domestic Market Also Shows Sector-by-Sector 'Joy and Sorrow'

[Asia Economy Reporter Ji Yeon-jin] On the 16th (local time), ahead of the Federal Open Market Committee (FOMC) meeting, the U.S. stock market experienced a rotation-driven session, with growth stocks such as technology shares showing strength. While large-cap technology stocks benefited from positive news, the energy sector declined due to negative developments, expanding the rotation between value and growth stocks. However, with profit-taking ahead of the FOMC, the Dow Jones Industrial Average fell 0.39% to 32,825.95, and the S&P 500 dropped 0.16% to 3,962.71 by the close. The Nasdaq Composite rose 0.09% to 13,471.57. The domestic market is also expected to see a sector-differentiated market driven by individual stock issues amid increased uncertainty ahead of the FOMC.

◆ Sangyoung Seo, Kiwoom Securities Researcher = The U.S. stock market is showing growth stocks outperforming value stocks. Ahead of the FOMC, profit-taking occurred mainly in value stocks that had risen recently. Positive news from Facebook (+2.02%) and AMAT (+3.15%) and negative news from NOV (-10.34%) triggered weakness in the energy sector. AMAT led gains in the semiconductor sector following its April 6 Investor Day and dividend increase. Facebook rose after resolving conflicts with the Australian government over news, signing a contract with News Corp (+1.81%), which lifted other content-related stocks. These individual issues drove the strength in growth stocks.

On the other hand, energy equipment and services company NOV plunged after announcing sales guidance below expectations. This move raised concerns about the earnings of other energy companies, leading to selling pressure across the energy sector. As a result, worries about earnings highlighted the weakness in value stocks.

Although Treasury yields remained steady ahead of the FOMC, weak real economy indicators and strong demand in the 20-year Treasury auction also supported growth stock strength. U.S. real economy data for February was weak due to the impact of winter storms. Retail sales fell 3.0% month-over-month, with automobile sales down 2.7%, reflecting the storm's effects. Industrial production decreased 2.2% month-over-month, automobile production plunged 8.3%, and factory utilization dropped to 72.3% from 74.6% last month, indicating significant contraction. The slowdown in real economy data triggered selling in value stocks. In the 20-year Treasury auction, the bid-to-cover ratio was 2.51, exceeding the recent six-auction average of 2.32, and indirect bids reached 61.4%, above the recent six-auction average of 59.3%, stimulating factors for lower yields. This caused value stocks to decline while growth stocks showed relative strength.

Considering the increased uncertainty ahead of the FOMC, the Korean stock market is expected to remain cautious, with sector differentiation driven by individual stock issues. Notably, Tesla (-4.39%) plunged amid concerns over intensifying competition, the energy sector showed weakness amid earnings concerns, and previously strong sectors such as finance, travel, and leisure weakened. This suggests a higher possibility of profit-taking in stocks without clear earnings improvement in the Korean market.

◆ Jaeman Lee, Hana Financial Investment Researcher = The phase of increased stock market volatility due to rising market interest rates has peaked. Although the 10-year Treasury yield is rising, the VIX index has turned downward, indicating this trend. The March FOMC meeting is scheduled. Considering the Federal Reserve (Fed) is likely to maintain its monetary easing stance, the stock market's sensitivity to interest rates is expected to decrease further.

The U.S. stock market has undergone a PER adjustment during this rate hike cycle. The S&P 500 PER high at the beginning of the year was 23 times, recently dropping to a low of 21 times, while the Nasdaq PER fell from a high of 34 times to a recent low of 30 times. Meanwhile, during the rate hike process, the 2021 EPS estimates for the S&P 500 have been revised upward for three consecutive months.

The liquidity-driven market is transitioning to an earnings-driven market, with investor focus expected to shift from interest rates to changes in earnings estimates. After the March FOMC meeting, whether earnings estimates are revised upward will likely have a significant impact on stock price movements. Energy has seen a 55% upward revision in 2021 EPS estimates compared to last year, banks 15%, materials 10%, and hardware & equipment 7%, with these sectors showing the largest consecutive three-month upward revisions. Since March, real estate and semiconductor & equipment sectors have also shown relatively large upward revisions in earnings estimates, marking a notable change.

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