[Good Morning Stock Market] Samsung Electronics Opens Earnings Season... "Profit-Taking Pressure Exists but Decline Expected to Be Limited"

On the morning of the 6th, KOSPI started on an upward trend at the IBK Financial Tower dealing room of Industrial Bank of Korea in Euljiro, Jung-gu, Seoul.
[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The earnings season officially begins on the 7th with the preliminary first-quarter earnings announcements from Samsung Electronics and LG Electronics. Attention is focused on the outlook as the upward trend in first-quarter earnings forecasts for listed companies, which is positive for the stock market, continues.

Yumi Kim, a researcher at Kiwoom Securities, said, "The MSCI Korea Index ETF rose 0.11%, the MSCI Emerging Markets ETF rose 0.55%, and the Eurex KOSPI200 night futures rose 0.23%. The 1-month NDF KRW-USD exchange rate is 1,119.50 won, and reflecting this, the exchange rate is expected to start in a stable range." She added, "The Korean stock market is expected to change depending on Samsung Electronics' preliminary earnings results today, and since the semiconductor sector's rebound was rapid recently, the possibility of profit-taking selling after major announcements cannot be ruled out." She continued, "However, if the results do not deviate significantly from solid market expectations, the decline is expected to be limited," adding, "The 6 basis points drop in U.S. Treasury yields and the 0.3% decline in the dollar index in the overnight U.S. stock market are expected to create a positive foreign investor supply environment."

◆ New York Stock Market Declines Due to Profit-Taking Selling

Profit-taking selling led to declines across major indices in the New York stock market.

On the 6th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed down 96.95 points (0.29%) at 33,430.24. The S&P 500 index fell 3.97 points (0.10%) to 4,073.94. The tech-heavy Nasdaq index also closed down 7.21 points (0.05%) at 13,698.38. The Dow and S&P 500, which had reached record highs in the previous session, turned down after four trading days. Although the market declined slightly, it remained near record highs due to the sustained positive effect of March employment data and favorable job openings released that day.

However, despite the indices falling, major companies closed higher. Tesla was virtually flat, rising 0.08% from the previous close, with a closing price of $691.62. Apple also rose 0.25%. Coupang, which had fallen for two consecutive trading days, reversed course and rose 1.37% on a weak market day, regaining the $46 level in a single day.

Investors are expected to focus on upcoming major corporate earnings announcements. Starting next week, large banks such as JPMorgan and Goldman Sachs are scheduled to release their first-quarter earnings.

◆ Yoojun Choi, Shinhan Financial Investment Researcher: "Improved U.S. Employment Data, Focus on Major Q1 Corporate Earnings"

The U.S. nonfarm payrolls for March, announced on the 2nd, increased by 916,000, significantly exceeding the forecast of 675,000, confirming a strong employment recovery due to the widespread COVID-19 vaccinations. Notably, 280,000 jobs were added in face-to-face service sectors such as restaurants, hotels, and leisure, which were severely affected by COVID-19. Following consecutive positive U.S. indicators, the 10-year Treasury yield re-entered the 1.7% range, and short-term rates also rose amid expectations of an earlier normalization of monetary policy due to faster-than-expected employment recovery.

At the end of March, the KRW-USD exchange rate volatility was limited around 1,130 won, and foreign investor inflows have resumed. Foreigners' cumulative net purchases over three trading days amounted to 1.3 trillion won. On the previous day, sector-wise, buying was prominent in sensitive sectors such as steel, chemicals, and construction. The steel sector rose on expectations of a rebound benefit from rising steel export prices to China following reports of a reduction in export value-added tax refunds, which was part of the Chinese government's steel export support measures.

The sharp U.S. economic recovery stimulates global risk asset preference, but the speed difference in recovery with the Eurozone, where COVID-19 resurgence concerns have recently emerged, is an uncomfortable factor for the stock market. Attention should be paid to major corporate earnings in the first quarter, starting with Samsung Electronics' preliminary earnings announcement.

◆ Bumji Park, Meritz Securities Researcher: "Is the Biden Administration's Corporate Tax Increase a Negative Factor?"

President Biden announced a $2.2 trillion infrastructure policy and revealed plans to increase corporate taxes to secure funding. The plan is to restore the statutory corporate tax rate from 21%, lowered during the Trump administration from 35%, back up to 28%. Immediate profit reductions are inevitable for companies, raising concerns.

Since the U.S. introduced a 1% corporate tax in 1909, there have been seven major tax increase phases: 1916?1918 (World War I), 1922?1926 (income tax reduction), 1932?1936 (Great Depression and New Deal), 1938?1942 (World War II), 1950?1952 (postwar normalization), 1968 (Vietnam War), and 1993 (deficit reduction and economic stimulus). Examining stock price trends by phase, the background appears more important than the tax increase itself. Tax hikes to fund wars (’16, ’38, ’68) led to stock price declines.

Conversely, in 1922, income tax cuts increased consumption and economic growth, and the 1932 phase was a period of recovery due to New Deal policies. Similarly, the 1950 and 1993 phases saw stock prices rise despite tax increases due to favorable economic conditions. Profit reductions from tax hikes were one-time events and did not affect long-term profit growth trends that determine stock price trends. Moreover, using the collected taxes for economic stimulus can be positive for long-term profits. In this tax increase phase, the medium- to long-term profit direction is likely more important than temporary profit declines. In the short term, concerns about tax hikes may increase volatility in sectors with large profit declines such as communications, IT, and healthcare, but double-digit profit growth is expected through 2023, and since the tax increase aims at large-scale infrastructure investment, the negative impact on stock prices is expected to be limited.

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