Optimal Trading Timing for Financial Stocks Captured from FOMC 'Powell's Words'

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[Asia Economy Reporter Lee Seon-ae] On the 18th, investment advice suggested that investors could gain hints about the 'timing for financial stocks' through the results of the Federal Open Market Committee (FOMC) meeting of the U.S. Federal Reserve (Fed).

On the 20th, Eun-taek Lee, a researcher at KB Securities, said, "To talk about the 'optimal trading timing for financial stocks' from a macro perspective, one must understand the accommodative FOMC and the sharply rising interest rates despite that," adding, "At the FOMC, Chairman Jerome Powell reaffirmed that tapering (tightening) would be done after confirming actual indicators (lagging), and that once entering the tapering path, the market would be informed in advance (preemptively). This means that 'preemptive notification' is a more realistic option, where the Fed confirms lagging data first and then informs the market preemptively."

Having confirmed the Fed's strong determination to overshoot inflation, short-term interest rates are expected to be suppressed while long-term interest rates rise. This 'interest rate steepening' creates a positive environment for financial stocks. The Bank of Japan's expansion of the range of interest rate fluctuations at its monetary policy meeting is also a factor contributing to 'interest rate steepening.'

If there is preemptive notification of tapering, which bonds will the Fed reduce purchases of first? Short-term bonds. A sharp rise in long-term interest rates burdens the real economy and could strain the government, which is preparing large-scale long-term bond issuance such as stimulus measures; therefore, long-term bond purchases are expected to be maintained. This is a factor for 'interest rate flattening.'

The researcher emphasized, "In conclusion, the favorable environment for financial stocks now lasts until tapering is mentioned," adding, "It will take at least 2 to 3 months to become clearer, but mid-2nd quarter and the approach of the U.S. Treasury yield to around 2% can be used as signals to start paying attention."

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