[Good Morning Stock Market] Fed Reaffirms Commitment to 'Zero Interest Rate'... Will Domestic Stocks Show Strength?

Powell Blocks Possibility of Preemptive Policy Normalization
"Expectations of Economic Recovery to Drive Stock Market Rally"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] The stock market responded positively with a sharp rise as the Federal Reserve (Fed) firmly stated its intention to maintain a prolonged accommodative monetary policy. Investors who had been cautious due to concerns that the timing of interest rate hikes might be brought forward are expected to expand their investment sentiment toward risk assets.

◆ Sangyoung Seo, Kiwoom Securities Researcher = After Fed Chair Jerome Powell maintained the interest rate freeze and raised economic forecasts, the stock market, which had shown a decline in early trading, turned upward.

When Fed Chair Powell firmly expressed his commitment to zero interest rates by saying, "We will not act preemptively based on forecasts," on the 17th (local time), the Dow Jones Industrial Average and the Standard & Poor's (S&P) 500 index each closed at record highs at the New York Stock Exchange. The 10-year U.S. Treasury yield, which had risen nearly 1.7% early in the session, fell back to the low 1.6% range. On that day, the Fed mentioned it would maintain the scale of bond purchases until full employment and inflation targets are reached, and raised this year's growth rate forecast to 6.5%, higher than the previous 4.2%.

The domestic stock market is expected to show strength today. The Federal Open Market Committee (FOMC), which had been a source of market concern, has concluded, and U.S. Treasury Secretary Yellen's remarks on the importance of the Korea-U.S. currency swap have increased the possibility of financial market stability. Chair Powell's indication that he will not take preemptive action based solely on expectations regarding tapering timing, and that discussions on interest rate hikes will begin only after substantial real growth has occurred, is positive for risk asset investment sentiment. Additionally, the dollar's expanded weakness and the reduction of the early sharp rise in Treasury yields are expected to be positive for foreign investor demand.

However, the continued rise in U.S. Treasury yields remains a concern. Also, ongoing friction between the U.S. and China, such as the U.S. warning China over its import of Iranian oil, could weigh on the market.

◆ Geonhyung Ha, Shinhan Financial Investment Researcher = If the burden of interest rate and policy normalization was greater than the economic recovery trend until the first quarter, it is predicted that in the second quarter, expectations for economic recovery will respond more strongly, improving investment sentiment. This is because the FOMC meeting reaffirmed the Fed's accommodative monetary stance, easing concerns about interest rate hikes and policy normalization. From an economic perspective, it appears we have entered a phase where frictional sluggishness is easing and previously anticipated factors such as stock market stimulus measures and accelerated economic normalization due to vaccine distribution are materializing.

◆ Jungwon Kim, Hyundai Motor Securities Researcher = Going forward, earnings improvements centered on the semiconductor sector are expected, with a continued rally in automobiles, chemicals, electronics, and semiconductors (Auto, Chemical, Electronics, Semiconductor).

Since last month, inflationary pressures have caused a sharp rise in the U.S. 10-year Treasury yields, significantly increasing volatility in the bond market. As concerns over U.S. Treasury yields ease and the Fed maintains an accommodative monetary policy leading to a weaker dollar, the stock market is expected to resume an upward trend.

It is expected that the market will break out of the box range during the second quarter. In the April earnings season, the KOSPI is anticipated to record a gradual upward trend alongside expectations for earnings improvements among domestic listed companies. Semiconductors are expected to play a significant role in earnings improvements. Currently, semiconductors account for 32% of total listed company earnings, and with global semiconductor demand improving, semiconductor net profits are forecasted to improve by about 36% year-on-year this year.

Since the beginning of this year, the automobile, transportation, and chemical sectors have recorded high returns, driving the Auto, Chemical, and Electronics sectors in the stock market. With semiconductor prices rising sharply since the start of the year and expectations for gains in the electronics and semiconductor sectors from the second quarter, the leadership rally in related stocks is expected to continue.

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