[Good Morning Stock Market] Mixed US Employment Data Signals "Goldilocks Phase"... Impact on Domestic Stock Market?

[Asia Economy Reporter Ji Yeon-jin] Last month, mixed employment indicators in the U.S. propelled the Nasdaq index, centered on tech stocks, to an all-time high. The number of new non-farm payrolls increased by 850,000, marking the largest rise since August last year. The most notable improvements were seen in the hotel & leisure, retail & transportation, and utilities sectors. On the other hand, the unemployment rate expanded from 5.8% in May to 5.9% last month. The market interpreted this positively. On the 2nd (local time), the Nasdaq index hit a record high. In the Goldilocks phase, where moderate economic recovery and appropriate policy support continue, the domestic market is also seeing a rise centered on small and mid-cap stocks rather than large caps. The advice is to broaden the portfolio rather than concentrate on specific sectors.

Shin Jun-ho, researcher at Ebest Investment & Securities = The term Goldilocks has emerged in the U.S. market because, despite employment recovery, the unemployment rate has risen. If the current employment trend (recovery to pre-pandemic employment levels within one year) continues, the Federal Reserve's stance is still likely to change by the end of the year. What draws attention in U.S. employment data is the ratio of jobs in services and manufacturing rather than net job increases. The service sector job ratio increased from 85.96% last month to 86.03%. The Federal Reserve will act only when service sector job growth occurs. In that sense, the upcoming ISM Services PMI scheduled for release on the 6th deserves attention.

In the domestic market, KOSDAQ outperforms KOSPI, and within large caps, growth stocks, as well as small and mid-caps with growth value, all outperform KOSPI. By sector, reopening-related sectors have high potential for improvement. The shift to an environment where inflation betting is difficult and the search for sectoral beneficiaries amid domestic demand recovery have been repeated in previous cycles. The sectors with high average returns and relative returns compared to KOSPI are healthcare, cosmetics & apparel & toys, hotel & leisure, securities, and consumer staples, in that order.

◆ Kang Jae-hyun, researcher at Shinhan Financial Investment: If employment indicators had already shown a generally stronger-than-expected surprise, the market would have reflected concerns about early tapering. Since that was not the case, on the day of the data release, the U.S. 10-year Treasury yield fell to 1.43%, and the S&P 500 index surpassed 4350, hitting another all-time high. Particularly, the decline in yields eased the burden of discount rates, leading sectors with high valuations such as IT and consumer discretionary to drive the stock market rally. Conversely, sectors with value stock characteristics like financials and energy, which have high beta to rising yields, underperformed relatively.

However, a detailed look at the data reveals signs of labor market normalization despite the rise in unemployment. There is still a possibility of an overall surprise in the Q3 employment data. Considering the potential rise in real interest rates in the medium term, value stocks are still expected to outperform. Given the current underperformance compared to growth stocks, it is judged to be an appropriate opportunity to increase their weighting. Preference is maintained especially for financials with high beta to rising rates and industrials benefiting from infrastructure investment execution.

◆ Seo Jeong-hoon, researcher at Samsung Securities = The rotation between growth and value stocks, as well as between cyclical and defensive stocks, has continued relentlessly until recently. An interesting point is the absence of meaningful corrections. Unlike previous patterns where uncertainty led to declines, the downside rigidity of indices has recently been observed to strengthen. Furthermore, most global stock markets, including the domestic market, are positioned at historic highs. Market participants' risk appetite has not been overwhelmed by uncertainty.

Judging solely by the direction of the indices, it would be reasonable to predict an upward trend despite new highs. However, the ongoing battle between the re-flation and disinflation camps is likely to continue. Assuming sporadic sector rotations persist, broadening the portfolio rather than concentrating on specific sectors can maximize operational effectiveness. This means moving beyond style, factor, and size constraints to include stocks with attractive prices and valuations. From a mid- to long-term perspective, the strong performance of cyclical and value stocks can still be expected, but it is hard to overlook the recent momentum of defensive and growth stock types. In healthcare, the fact that it recorded the weakest performance in the first half could be an advantage at this point. The domestic materials sector, which has undergone a preceding correction until recently, also combines the advantage of continued profit growth in the second half. The fact that KOSDAQ's gains have lagged behind the KOSPI, which has hit new highs, is also worth considering now.

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