Will the US Stock Market's Dominance Continue?

[Asia Economy Reporter Song Hwajeong] As the U.S. stock market continues its strong performance, the decoupling phenomenon with emerging markets, including South Korea, is intensifying. With the economic recovery expected to continue centered on the U.S., the decoupling trend between the U.S. and emerging markets is likely to persist for the time being.

On the 3rd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,369.09, down 74.73 points (0.21%) from the previous session. The S&P 500 index fell 1.52 points (0.03%) to 4,535.43, while the tech-heavy Nasdaq index rose 32.34 points (0.21%) to close at 15,363.52. Although the market started lower due to weaker-than-expected August employment data, the Nasdaq index reached another all-time high as technology stocks climbed.

Despite emerging markets, including South Korea, showing weakness in August, the U.S. stock market continued its strong rally, hitting record highs day after day. Kim Jungwon, head of investment strategy at Hyundai Motor Securities, analyzed, "Since the beginning of the year, decoupling between developed and emerging markets has continued due to differences in recovery speed linked to vaccination rates. While the U.S. stock market, supported by strong economic recovery momentum, showed a steady upward trend, emerging markets remained flat amid concerns over economic slowdown and ongoing COVID-19 spread."

Although Jerome Powell, Chair of the U.S. Federal Reserve (Fed), showed a more moderate stance than expected in his speech at the Jackson Hole meeting, the U.S. officially announced tapering (reduction of asset purchases) within the year, considering the recovery of economic strength. In contrast, emerging markets, facing weaker economic recovery, are preemptively raising interest rates to counter capital outflow pressures.

The U.S. is judged to have passed the peak of the Delta variant, and future economic improvement is expected to be centered on the service sector. Kim explained, "The shift in consumption trends toward services is unlikely to lead to a trickle-down effect to export-driven emerging markets. Rather, the announcement of tapering plans during policy normalization and the shift in consumption trends toward services are factors that slow down emerging market economies."

Although the August U.S. employment data was weaker than expected due to the Delta variant, if employment indicators improve faster than expected following higher vaccination rates, market volatility is expected to increase amid policy normalization concerns. Kim said, "Ultimately, even during the normalization process, economic recovery will continue centered on the U.S., which has strong growth potential. The decoupling trend between the U.S. and emerging markets is expected to be maintained."

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