[Good Morning Stock Market] Unclear Direction... Strong Rotation Among Individual Stocks

Korean Stock Market Expected to Enter Wait-and-See Mode After Mechanical Rebound

Stacey Cunningham, CEO of the New York Stock Exchange (NYSE), is taking a photo outside the exchange building on the 7th (local time) with a large screen and the opening bell in the background. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market closed slightly lower amid caution over inflation indicators. Persistent inflation concerns, coupled with President Joe Biden's announcement that infrastructure investment negotiations with the opposition party have broken down, have caused the market to hesitate somewhat. Amid rapid rotation among value stocks, growth stocks, financials, and technology sectors, there is an analysis suggesting the need to pay attention to industry groups that will lead future industrial trends.

On the 9th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 34,447.14, down 0.44% from the previous session. The S&P 500 index fell 0.18% to 4,219.55, and the Nasdaq index dropped 0.09% to 13,911.75. Investors are cautious ahead of the May Consumer Price Index (CPI) report scheduled for release on the 10th.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities= In the U.S. 10-year Treasury auction, the bid-to-cover ratio recorded 2.58 times, exceeding the 12-month average of 2.40 times. Indirect bids also surpassed the 12-month average of 60.5%, reaching 65.0%, indicating strong demand for bonds. Despite concerns that the May CPI might exceed last month’s figure, bond demand increased significantly. This suggests acceptance of the Federal Reserve’s claim of transitory inflation. Following the Canadian monetary policy meeting, which announced a stance largely unchanged from April, and the U.S. Treasury auction results, the U.S. 10-year Treasury yield briefly fell to the low 1.47% range during the session. Consequently, U.S. financial and industrial stocks weakened amid sell-offs, while technology and biotech sectors showed strength.

Recently, market participants have been cautious, reacting sensitively to stock and sector-specific issues. This has led to rapid rotation among value and growth stocks, financials and technology sectors, as well as between optimism and pessimism. This phenomenon arises because the market lacks a clear direction or strong confidence. In such cases, it is necessary to focus on stock groups with clearly improving earnings and sectors that will lead future industrial trends. Ultimately, once the direction is decided, these groups are expected to lead the market.

The domestic stock market is expected to rebound, leaving behind the sluggish trend caused by temporary supply-demand factors the previous day. The decline in U.S. Treasury yields indicates that even if the U.S. May CPI, to be announced on the 10th Korean time, accelerates, it will be difficult for the Federal Open Market Committee (FOMC) next week to signal tapering (reduction in asset purchases). This is expected to positively influence investment sentiment in the Korean stock market.

◆ Jiyoung Han, Researcher at Kiwoom Securities= Inflation remains at the center of the market, but recently, noise surrounding infrastructure investment has reemerged. President Biden announced that negotiations on infrastructure investment with Republican Senator Shelley Moore Capito have broken down. The explanation is that the two sides failed to narrow differences on key issues such as investment scale, support scope, and tax increases. Investment is indispensable to fully restore the economy to pre-COVID-19 levels and to address the severe aging of major U.S. infrastructure facilities. Therefore, the passage of the government’s infrastructure investment plan is considered a foregone conclusion, but it is expected that negotiations will intermittently cause market noise.

The Korean stock market is expected to enter a cautious phase influenced by concerns over U.S. consumer prices and the European Central Bank (ECB) meeting. Additionally, supply-demand conditions in the futures and options markets related to domestic expiration dates may cause intraday volatility to expand toward the latter part of trading sessions. However, as seen in the market’s reaction after the recent Chinese inflation data release and the strong U.S. 10-year Treasury auction, investors increasingly perceive inflation as a neutral factor rather than a negative one.

Nonetheless, since the unexpected inflation surprise in the U.S. consumer price data last April triggered short-term market anxiety, it is necessary to keep in mind the possibility of a similar occurrence this time. Currently, Federal Reserve officials have entered a blackout period prohibiting comments ahead of the FOMC meeting, so the market will not receive the Fed’s opinions after the consumer price announcement, which could be a short-term burden.

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