[Good Morning Stock Market] "Thank You Biden"... US Stock Market Rebounds, Will Domestic Cyclical Stocks Cheer?

[Image source=EPA Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] On the 25th (local time), the U.S. stock market closed higher as cyclical stocks showed strength, supported by President Joe Biden's increased vaccine target. The Dow Jones Industrial Average rose 0.62% compared to the previous day, while the S&P 500 and Nasdaq increased by 0.51% and 0.12%, respectively. This rebound in the U.S. stock market is expected to have a positive impact on the domestic market, with particular attention on whether cyclical stocks will show strength.

◆ Yumi Kim, Kiwoom Securities Researcher = The U.S. stock market initially declined despite dovish remarks from Federal Reserve Chair Jerome Powell and Vice Chair Clarida, as well as improved employment data. Concerns over testimonies by CEOs of Facebook, Google, and Twitter before the House of Representatives dragged the indices down. In particular, large tech stocks declined as there was talk of possible amendments to 'Section 230,' which acts as a shield for companies operating social platforms. Facebook (-1.21%), Alphabet (0%), Amazon (-1.32%), and Twitter (-1.39%) all showed downward trends.

However, the Biden administration's announcement to double the COVID-19 vaccination target to '200 million doses within 100 days of inauguration' led to strength centered on cyclical stocks. President Biden stated at his first press conference that the vaccine target would be raised and that an announcement regarding next week's infrastructure stimulus package would be made. As a result, Boeing (+3.3%) rebounded on news of the increased vaccination target and the start of 787 Dreamliner deliveries this week, and the travel sector (Carnival +4.02%, AAL +4.40%) also rose. Nike (-3.4%) fell amid escalating U.S.-China tensions over alleged human rights abuses against Uyghurs in Xinjiang, leading to a boycott campaign in China, while GameStop (+52.7%) surged sharply due to a retail investor-driven rebound buying spree.

The MSCI Korea Index ETF rose 1.53%, and Eurex KOSPI 200 night futures increased by 0.41%. The 1-month NDF USD/KRW exchange rate stood at 1,135.49 won, reflecting an expected approximately 1 won increase at the opening. The U.S. vaccine target increase and the rebound in the U.S. stock market are positive for the domestic market. The negative factors affecting U.S. tech stocks are specific risks and thus are expected to have a limited impact on the Korean market.

◆ Dae-hoon Han, SK Securities Researcher = Although the rise in the U.S. 10-year Treasury yield has been halted, investor sentiment remains uneasy. The resurgence of COVID-19 in Europe has lowered expectations for economic reopening, and the Uyghur issue has intensified U.S.-China tensions, adding to concerns. In particular, news that U.S. Treasury Secretary Janet Yellen is considering tax reforms including corporate tax hikes related to the Biden administration's stimulus plan has dampened investor sentiment. Secretary Yellen believes changes in the tax structure are necessary to finance the stimulus, and President Biden is expected to announce corporate tax increases and higher taxes on high-income earners when unveiling the social infrastructure investment package in Pittsburgh on the 31st. Since corporate tax cuts during the Trump administration led to increased corporate profits and stock price gains, tax hikes are inevitably negative for the stock market.

However, most Republican lawmakers and some Democrats oppose broad tax increases. There is consensus that it is difficult to simultaneously implement urgent infrastructure projects and tax reforms, so tax hikes are expected to take time. Since infrastructure investment and stimulus are priorities, cyclical stocks are naturally more attractive investments. Even if tax hikes are implemented, cyclical stocks can partially offset the negative impact due to benefits from the stimulus. Sectors with steep earnings estimate increases include construction and building materials, steel, media, energy, ITHW, and semiconductors.

◆ Sang-hyun Park, Hi Investment & Securities Researcher = U.S. President Joe Biden's first press conference after inauguration focused most notably on China policy and vaccine policy. Unlike former President Trump, who emphasized economic issues, Biden highlighted foreign affairs and the China policy stance. This suggests that the U.S.-China relationship will continue in a strong confrontation phase for the time being.

Biden's press conference partly influenced a pronounced dollar strength phenomenon. The dollar index rose to around 92.9, the highest level since November 4 last year (93.4). The dollar's strength is due to relatively strong U.S. economic momentum, euro weakness caused by reinforced lockdowns to curb COVID-19 spread in Europe, and Biden's tough stance on China leading to risk-off sentiment. Improvements in the labor market, such as the lowest weekly initial jobless claims since the COVID pandemic, and Federal Reserve Chair Jerome Powell's mention of a gradual withdrawal of economic support also fueled dollar strength. The offshore yuan-dollar exchange rate (closing on the 25th) reached 6.5482 yuan, the highest since December 1 last year, reflecting recent emerging market financial market turmoil and yuan weakness, which negatively affects global risk asset preference. However, the dollar strength has led to adjustments in prices of various commodities such as crude oil, which may ease inflationary pressures that have been a major cause of financial market instability.

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