[Good Morning Stock Market] Selling Pressure Likely to Intensify... Index Direction Depends on 'Economic Indicators'

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 1st, the domestic stock market is expected to undergo a process of digesting sell-off following the strong rise the previous day. It is likely to start lower due to profit-taking selling and the impact of the decline in consumer confidence index, as well as the influence of the U.S. stock market, which took a breather after falling.

On the 31st (U.S. Eastern Time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,360.73, down 39.11 points (0.11%) from the previous session. The Standard & Poor's (S&P) 500 index, centered on large-cap stocks, closed at 4,522.68, down 0.13%. The Nasdaq index, focused on technology stocks, recorded 15,259.24, down 0.04%. The two indices fell slightly one day after both hit record highs the previous day. Meanwhile, the Russell 2000 index, which is mainly composed of small and mid-cap stocks, rose 0.34% to 2,273.77.

Investors are focusing on the employment report to be released later this week, based on Federal Reserve (Fed) Chairman Jerome Powell's remarks about the possibility of tapering (reducing asset purchases) within the year, while stating that employment data needs to be observed further. According to economists surveyed by The Wall Street Journal, the August nonfarm payrolls are expected to increase by 720,000, down from 943,000 in the previous month. If the data slows down, expectations for a delayed tapering timeline are likely to strengthen. Conversely, if the data is stronger than expected, the tapering timeline could accelerate.

Experts in the New York stock market diagnose that despite the adjustment on this day, the momentum of economic recovery remains alive, supporting the upward trend in stock prices.

Mark Haefele, Global Chief Investment Officer (CIO) of UBS Global Wealth Management, said, "The momentum of economic reopening and recovery is still alive, and I expect stock prices to rise further," adding, "The rise in the S&P 500 index is supported by solid earnings growth."

◆ Seo Sang-young, Researcher at Mirae Asset Securities = The U.S. stock market showed a mixed trend, including weakness due to poor economic indicators, which is likely to increase the possibility of profit-taking selling following the strong rise in the Korean stock market the previous day. Since market participants have increasingly focused on the economy after the Jackson Hole Conference, the direction of the index is expected to be determined by Korea's export-import statistics and China's Caixin manufacturing index results. Considering this, the Korean stock market is also expected to show this trend, with a process of digesting selling centered on individual companies after a decline. The KOSPI index is expected to start down about 0.5%.

◆ Lee Kyung-soo, Researcher at Hana Financial Investment = The most noticeable recent style in the domestic market is likely the "rebound in the performance of the earnings momentum factor" and the "rotation market (improvement in factor performance due to excessive price declines)." These factors were the best-performing styles throughout August. After the Q2 earnings announcements, changes in this year's and next year's consensus were reflected in stock prices, increasing the correlation between earnings changes and stock prices for the first time in a while. Also, as the KOSPI index rebounded, there appeared to be a rebound buying in stocks that had been excessively sold off.

So, what styles are promising until the end of the year? First, the earnings momentum factor is expected to only recover the poor performance seen this year. Although the overall earnings consensus for domestic companies has somewhat lowered, highlighting the rarity of earnings improvement, 1) from a year-end seasonal perspective, the earnings momentum factor's performance is expected to plateau (rather favorable in the first half), 2) currently, instead of short-term earnings direction, promising themes with guaranteed future growth (electric vehicles and parts, bio, IT, etc.) are in a favorable supply-demand situation (due to the global nominal interest rate trend decline), 3) supply-demand is dispersed due to secondary factors such as ESG rather than simple earnings, and 4) as the year-end approaches, the performance of new (short-term) earnings improvement stocks rather than existing (mid-to-long-term) earnings improvement stocks is higher, resulting in a half-hearted style. Due to these factors, the earnings momentum factor is given a neutral opinion until the end of the year.

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