[Good Morning Stock Market] US Stock Market Surpasses Worries Despite Delta Variant Concerns

S&P Closing Price Hits All-Time High
Strong Corporate Earnings Including AMD...Market Liquidity Confirmed
Positive Impact on Korean Stock Market...Need to Monitor China's Intraday Caixin Index and Other Conditions

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Despite concerns over the spread of the COVID-19 Delta variant and a slowdown in economic recovery, the U.S. stock market closed on a strong note as active buying surged. The domestic stock market is also expected to reflect this, moving according to China’s COVID-19 situation and earnings announcements from some companies after starting higher.

On the 3rd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,116.40, up 0.80% from the previous day. The S&P 500 and the tech-heavy Nasdaq indices also closed higher by 0.82% and 0.55%, respectively, at 4,423.15 and 14,761.29. The S&P 500 set a new all-time closing high.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= The U.S. stock market initially fell as concerns over the spread of the COVID-19 Delta variant increased, dampening investment sentiment amid fears of a slowdown in economic recovery. The weekly average of new confirmed cases surged to nearly 80,000, which weighed heavily on the market. The spread of COVID-19 across China, including confirmed cases in Wuhan after 15 months, also contributed to the decline in investor sentiment. Additionally, the Chinese State Council’s General Office’s guidelines on private education regulations, which included restrictions on electronic device usage and prevention of gaming addiction, had a negative impact.

However, as AMD, which had been surging for days, saw an expanded rise due to market concentration, buying interest flowed broadly across the market. AMD’s solid earnings report, upward revision of earnings targets, and growth drivers in the data center market were cited as reasons for the surge. Positive news from individual companies helped the stock market turn upward. As U.S. Treasury yields, which had recently fallen sharply, began to rise, easing concerns over a slowdown in economic recovery, sectors such as financials, industrials, energy, and some technology stocks showed strength.

The news that U.S. household debt reached $15 trillion (approximately 17,228 trillion KRW) in the second quarter also had a positive effect. Household debt increased by $313 billion in the second quarter alone, marking the fastest growth since 2007. While this was partly due to a surge in mortgage loans, the rapid increase in borrowing for investment purposes indicated abundant market liquidity. According to the IBD/TIPP Economic Optimism Index, the optimism index for investors investing over $10,000 was 65.4, while that for investors investing less than $10,000 was 48.1, below the baseline of 50. The gap of 17.3 between these groups was the highest in 20 years.

The domestic stock market is also expected to start higher, influenced by this liquidity. Subsequent movements will likely depend on China’s COVID-19 issues, the Caixin Services PMI, and earnings announcements from some companies.

◆Yujun Choi, Researcher at Shinhan Financial Investment= The KOSPI has been sluggish since reaching the 3,300 level early last month. While solid fundamentals, represented by export indicators, remain intact, there are concerns about a slowdown in growth momentum. Expectations for July’s industrial survey indicators in major countries have lowered, fueling debates about having passed the economic peak (peak-out). The spread of COVID variants is also affecting short-term market direction.

August tends to see a decline in trading volume due to the holiday season. As supply to absorb selling pressure decreases, the volatility index typically rises in August. Additionally, the reallocation (rebalancing) of major funds is another factor increasing volatility.

Large semiconductor stocks led the market’s rise for the first time in a while. Positive signals regarding the semiconductor industry attracted net buying from foreign investors. In contrast, sensitive sectors such as steel, machinery, and shipping saw larger declines, resulting in a significant divergence. Despite the KOSPI’s rise, the number of declining stocks was more than twice that of advancing stocks. In the short term, the KOSPI’s upper limit may be constrained, and a rotation market is likely to continue.

In August, when volatility increased, the quality style?composed of stocks with strong financial health and earnings power?outperformed the KOSPI. With the earnings season underway, an approach focusing on quality stocks is considered effective. If the supply-demand conditions for large semiconductor stocks improve, the capacity for other large stocks to attract funds may decrease, making a combination of quality and small-to-mid caps worth attention.

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