[Good Morning Stock Market] Nasdaq Decline Due to Profit-Taking Desire, Not Yellen's Remarks

Nasdaq closes at 13,582.42 after falling for 4 consecutive trading days
Institutions including hedge funds realize profits
Dollar expected to slow down or reverse weak trend from second half of the year

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] U.S. Treasury Secretary Janet Yellen argued that interest rates need to be raised somewhat to prevent economic overheating, causing global stock markets to fluctuate but then rise again due to counter-buying. It is observed that the Nasdaq's decline stemmed more from profit-taking desires than from Yellen's remarks.

On the 5th (local time), the Dow Jones Industrial Average closed at 34,230.34, up 0.29% (97.31 points), marking a record high for the third consecutive day. The S&P 500 index ended at 4,167.59, up 0.07% (2.93 points). Meanwhile, the Nasdaq index closed at 13,582.42, down 0.37% (51.08 points), falling for four consecutive trading days since the 30th of last month.

◆ Seo Sang-young, researcher at Mirae Asset Securities = The previous day, Secretary Yellen's assertion that interest rates should be raised somewhat to prevent economic overheating led to sharp declines in large tech stocks, software, and medical device sectors. However, financial stocks led gains, and although the Dow Jones Industrial Average once fell 1% due to Apple and others, it successfully turned upward in the latter part of the session, resulting in extreme differentiation among stocks and sectors.

Yellen's remarks on interest rate hikes should be seen as a fundamental statement. It can be interpreted to mean that if the economy shows signs of overheating beyond normalization expectations, the Federal Reserve (Fed) should adjust interest rates. In fact, after Yellen's remarks, the 10-year U.S. Treasury yield fell, and the dollar only showed slight strength. Her comments affected the stock market but had little impact on the foreign exchange market.

The Nasdaq's decline was driven by profit-taking desires. Growth stocks, including large tech companies, had already seen selling pressure and widening declines before Yellen's remarks. A recent characteristic of U.S. and overseas stock markets is that even when individual companies report earnings exceeding expectations, there is a strong desire to realize profits. Since November last year, hedge funds and other institutions have engaged in profit-taking since mid-last month when the earnings season began in earnest. The recipients of this supply-demand are individual investors.

◆ Yoon Yeo-sam, researcher at Meritz Securities = Few doubt the dollar's status, but concerns about a sustained long-term dollar weakness continue to be raised.

Led by Goldman Sachs, most dollar forecasts this year favored weakness. The accommodative monetary policy of the U.S. Federal Reserve (Fed) combined with the expansive fiscal policy of the Joe Biden administration was expected to cause massive dollar supply, driving dollar weakness.

However, in the first quarter of this year, the dollar index strengthened by 3.72% compared to the previous quarter, once again disproving the adage that when forecasts converge, they do not come true. While increased dollar supply is important, a strong U.S. economy triggered dollar demand, and the sharply rising interest rates in the short term also supported a shift to dollar strength. On the other hand, since last month, the dollar's value has fallen by 2.48% in just one month, turning weak.

Expectations for a strong U.S. economy remain valid, but the perception of pre-reflection is high, and the pace of long-term interest rate increases has slowed. As fiscal spending accelerates, dollar supply is also increasing, and abundant liquidity conditions are contributing to rising financial assets. However, starting with discussions on tapering asset purchases in the second half of this year, monetary policy stances will change, interest rates will rise, and as accumulated bond futures short positions are liquidated, the dollar weakness trend is expected to either slow down or reverse.

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