[Good Morning Stock Market] US Stock Market Hits New High Again... Domestic Market Expected to Show Stock-Specific Trends

Profit-taking selling expected to emerge after initial upward movement

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Last night, major U.S. stock indices hit new highs again as risk asset preference revived following Pfizer's official approval of its COVID-19 vaccine. The domestic stock market, which somewhat recovered the previous day, is expected to undergo a process of digesting profit-taking selling pressure.

On the 24th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,366.26, up 0.09% (30.55 points) from the previous day. The S&P 500 index rose 0.15% (6.70 points) to 4,486.23, and the tech-heavy Nasdaq index gained 0.52% (77.15 points) to close at 15,019.80.

The S&P 500 index recorded its 50th new high this year. The Nasdaq index also surpassed 15,000 for the first time ever, marking a record high.

◆ Sangyoung Seo, Researcher at Mirae Asset Securities = The U.S. stock market showed a sector-differentiated trend with fluctuations based on individual factors amid cautious sentiment ahead of the Jackson Hole Conference. Vaccine-related stocks, which surged sharply after the U.S. Food and Drug Administration (FDA) approved Pfizer and BioNTech's COVID-19 vaccine the previous day, fell significantly. This is estimated to be due to profit-taking selling pressure. The FDA approval was already anticipated and does not affect short-term earnings. Additionally, Moderna has also started the vaccine approval process, and Novavax has not yet submitted for emergency use authorization, which likely increased the desire for profit-taking after the previous day's surge. Attention should be paid to future announcements of emergency approval for vaccines targeting children and supply contracts secured after 2022.

Nevertheless, vaccine approval ultimately raised expectations for faster vaccination rates and increased travel and mobility, leading to strength in travel, leisure, hotel, and airline sectors. Furthermore, the rally in major commodity futures markets such as international crude oil brought gains to energy, mining, and financial sectors. While 'contact' related stocks showed clear strength, essential consumer goods and non-face-to-face (untact) related stocks lagged, resulting in sector differentiation. This sector differentiation is expected to continue amid cautious sentiment ahead of the Jackson Hole Conference.

Since the U.S. stock market is showing a stock-specific differentiated trend without clear upward momentum, the domestic stock market is also expected to start higher but then undergo a process of digesting profit-taking selling pressure. However, contact-related stocks are still expected to remain firm, so attention should be paid to factors affecting individual stocks rather than the index. In particular, considering the rebound of U.S. General Motors (GM), which fell due to recall issues, and the strong gains of about 4.8% in iron ore and 3% in international crude oil in the Chinese commodity futures night session, focus should be placed on individual sectors such as secondary batteries, steel, and energy.

◆ Yujun Choi, Researcher at Shinhan Financial Investment = Concerns about early tapering (reduction of asset purchases) have eased, and foreign selling is slowing down. Along with the decline in the won-dollar exchange rate, foreign selling seems to have passed its short-term peak. Some program non-arbitrage buying has flowed in, and the KOSPI appears to be testing its bottom. However, it is still too early to expect a full-fledged rebound. Materials that dispel concerns about economic expansion, which is the foundation of the earnings market, are needed.

Concerns about passing the peak of economic expansion have emerged as the base effect disappears. Subsequently, the delta variant spread worldwide, causing the Purchasing Managers' Index (PMI) to fall below expectations, and concerns about slowdown have been highlighted, especially in the Association of Southeast Asian Nations (ASEAN) region vulnerable to quarantine measures. Supply chain disruptions continue, and indicators may decline further. Therefore, it is premature to judge a trend reversal in the domestic stock market, which is manufacturing-centered.

However, low valuation is a factor that can support the downside. The price-to-earnings ratio (PER) of the domestic stock market is at 70% compared to the beginning of the year. This decline in valuation is greater than that of the emerging market index, which is in the low 80% range. It is judged that the valuation gap can narrow as exports continue to perform well.

The stock market is gradually passing the peak of adjustment speed in the short term along with the exchange rate decline. Foreign selling has also entered a speed adjustment phase. It will take time to confirm a trend change in supply and demand. Foreign investors are responding mainly with net futures buying. The recent stock price rebound has also been linked to foreign investors' net futures buying flow. Confirmation of a shift to net spot buying based on passive fund inflows is necessary.

To achieve a trend reversal to net spot buying by foreign investors, it is necessary to confirm that the COVID-19 peak has passed by September. The resulting easing of supply chain disruptions and the realization of fiscal policies in the U.S. and China are necessary conditions for a trend reversal to net foreign buying.

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