[Good Morning Stock Market] "Impact of US Employment Data Shock... Domestic Stock Market Expected to Slightly Rebound"

U.S. August Employment Data Shock
Domestic Stock Market Expected to Rise Slightly
as Tapering Concerns Ease

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Although the U.S. employment data shock has increased uncertainty around the Federal Reserve's (Fed) monetary policy, opinions suggest that, in the short term, it will trigger a rebound in the domestic stock market. Additionally, as year-end corporate inventory accumulation demand rises, related sectors such as semiconductors, automobiles, and IT are expected to continue their strength.

Kyungmin Lee, Researcher at Daishin Securities: “Employment data bought time for a continued favorable investment environment”

The U.S. August employment data was a shock. While the unemployment rate matched market expectations at 5.2%, nonfarm payrolls increased by only 235,000, far below the market forecast of 720,000. This reflected the impact of the resurgence of COVID-19. As a result, the U.S. stock market showed a confused reaction between economic anxiety and easing monetary policy uncertainty.

Ultimately, economic recovery and confidence are important, but in the short term, relief regarding U.S. monetary policy is expected to be reflected in the stock market. This is because the employment shock is largely influenced by specific sectors and seasonal factors, and the possibility of prolonged COVID-19 spread is low. Positive changes can also be expected once COVID-19 subsides. Accordingly, the market perception that tapering (asset purchase reduction) may retreat somewhat is expected to calm economic anxiety and buy time for a favorable investment environment to continue in the stock market.

Recently, the KOSPI has shown a technical rebound, and the 'shopping season' is a key factor to watch in the upcoming fluctuations. First, the August ISM Manufacturing Index recorded 59.9, surpassing expectations of a decline from the previous month (59.5). This was due to increases in inventory, new orders, and production indices. Inventory accumulation demand flowed in ahead of the year-end consumption season. Additionally, funds flowed into Korean ETFs in August, marking a change after about six months since February. Global liquidity has also begun preparing for the year-end shopping season.

Every year in September and November, the KOSPI as well as U.S. and global stock markets have shown strength. This is a recurring pattern driven by inventory accumulation demand in preparation for the year-end shopping season. The sectors leading the rise during the same period are semiconductors, IT home appliances, software, and automobiles. Attention should be paid to the fact that retail inventory levels are extremely low due to prolonged supply chain bottlenecks.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Domestic stock market will rebound but the upward trend is unlikely to continue”

Last week, the U.S. stock market showed mixed results as economic slowdown and COVID-19 spread issues gained attention following the employment report. The Dow Jones Industrial Average fell 0.21%, the S&P 500 dropped 0.03%, while the Nasdaq rose 0.2%.

The U.S. employment data falling significantly short of expectations, easing the possibility of aggressive tapering by the Fed, is expected to have a positive impact on the domestic stock market. However, considering that Fed Chair Powell and other Fed officials have already made tapering implementation this year a foregone conclusion, related concerns may persist, making the continuation of the upward trend unlikely.

Additionally, this week’s monetary policy meetings?Australia on Tuesday, Canada on Wednesday, and the ECB on Thursday?are also burdensome factors. In the case of the ECB, amid rising inflationary pressures, ECB officials including President Lagarde have mentioned reducing liquidity support, and the central bank governors of Australia and Canada have also made hawkish remarks.

Moreover, the slowdown in China’s economic indicators raises the possibility of a global economic slowdown in the second half of the year, which is expected to burden foreign investor demand. The employment report results may increase uncertainty about the Fed’s policy direction for some time, which is also a concern. Accordingly, the domestic stock market is likely to see profit-taking after an initial rise.

Seungjin Shin, Researcher at Samsung Securities: “Continued interest needed in secondary batteries and economically sensitive stocks”

Since last week, the domestic stock market has shown a strong rebound centered on economically sensitive stocks, reopening-related stocks, and financial sectors that had not risen much until now. The KOSPI is currently around 3,200 points, and the KOSDAQ is near the 1,000 level, maintaining a box range.

The biggest factor is supply and demand. Unlike last year, when rapid idle funds flowed in after COVID-19, this year’s market continues a thorough stock-by-stock trend. In the absence of clear leading stocks like last year, a long-short play where investors realize profits on stocks that have risen and buy stocks that have fallen relatively more is inevitable.

Ultimately, in the current box range market, a strategy seeking excess returns through trading is effective. The core strategy is expected to be holding eco-friendly sectors with good policy and earnings momentum, while the rest should focus on trading strategies involving reopening and economically sensitive stocks.

For example, electric vehicle-related companies have recently undergone corrections but their growth trend remains unchanged. Looking at our companies’ secondary battery exports to the U.S. in August, they surged more than threefold compared to the same period last year. Since the eco-friendly theme continues to have global policy and earnings growth momentum, an active strategy to increase weight during corrections caused by supply-demand issues is necessary.

Sectors benefiting from economic normalization due to rising vaccination rates are also essential in portfolios. Countries worldwide are changing their COVID-19 control methods as vaccination rates rise. From late September to October, Korea is expected to consider coexistence rather than control through the With COVID policy. Although we are currently passing through the worst phase due to COVID-19, selecting companies that can survive will enhance investment performance in the normalization phase.

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