[Good Morning Stock Market] Possibility of FOMC-Related Sell-Off... A Day Marked by Cautious Trading

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[Asia Economy Reporter Lee Seon-ae] On the 3rd, the domestic stock market is expected to experience a day of cautious observation. There is a possibility of sell-offs ahead of the Federal Open Market Committee (FOMC) meeting, so attention should be paid to intraday supply and demand volatility.

The New York stock market closed at record highs ahead of the FOMC regular meeting announcement. On the 2nd (Eastern Time), at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 36,052.63, up 138.79 points (0.39%) from the previous session. The Standard & Poor’s (S&P) 500 index rose 16.98 points (0.37%) to 4,630.65, and the tech-heavy Nasdaq index increased by 53.69 points (0.34%) to close at 15,649.60.

All three major indices hit record highs for the third consecutive trading day, with the Dow surpassing 36,000 for the first time ever. From the 2nd to the 3rd, the Federal Reserve (Fed) will hold its regular FOMC meeting to decide on the benchmark interest rate. Investors expect the Fed to announce tapering (reduction of asset purchases) at this meeting. Fed Chair Jerome Powell is expected to emphasize that even if bond purchases end completely, interest rates will not be raised immediately.

However, the market expects inflation to remain higher for longer than anticipated, leading the Fed to raise interest rates around mid-next year after tapering ends.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = With the U.S. stock market showing limited clear direction while awaiting the FOMC, fluctuations are expected depending on changes in individual stock groups, so the Korean stock market is also likely to show limited movement. In particular, although the stock market has been solid, the decline in government bond yields and international oil prices, along with the strengthening of the dollar and yen, indicates increased preference for safe assets, which is expected to weigh on foreign investor demand.

Considering this, the Korean stock market is expected to start flat but cannot rule out the possibility of sell-offs ahead of the FOMC. Although the Fed is expected to announce tapering through the FOMC, investors are closely watching the Fed’s stance on inflation, so overall, a cautious observation day is anticipated.

Meanwhile, attention should also be paid to the release of China’s Caixin Services PMI. It improved significantly from 46.7 last month to 53.4, positively influencing the market, but there is a possibility it may fall short, which could act as a factor dampening investor sentiment.

◆ Han Ji-young, Researcher at Kiwoom Securities = Despite macro variables such as supply shortages, Fed policy, and commodity inflation not having completely disappeared, the reason major countries’ stock markets are showing a steady upward trend is due to earnings momentum. Confidence in earnings has largely recovered through the Q3 earnings season, so the slowdown in earnings growth next year is expected to be less severe than previously anticipated. This is judged to provide downside rigidity to the indices even during phases of increased market volatility caused by the resurgence of the aforementioned negative factors.

Market caution toward the November FOMC does not appear high. Following the August Jackson Hole meeting and the September FOMC, statements from Fed officials suggest that tapering within this year has been largely priced in by the market. Although uncertainty remains regarding the timing of tapering completion next year, interest is greater in the schedule for interest rate hikes next year. Therefore, after the November FOMC, clues about the Fed’s future interest rate path are expected to be found through changes in Fed Chair Jerome Powell’s inflation assessment during the press conference.

Considering the above factors, the domestic stock market on this day should be cautious of increased intraday supply and demand volatility as short-term cash securing sell-offs may emerge following the previous day’s over 1% rise amid FOMC caution. However, given that earnings momentum remains and overall global risk asset preference continues, the index trend is expected to be solid. Among the recently large-cap stocks by market capitalization, semiconductor stocks are increasingly recognized as having bottomed out, so it will be necessary to watch the price movements of these sectors. Additionally, market interest is expected to expand regarding the success of Kakao Pay, which is scheduled to be listed on the KOSPI, and the price changes of related beneficiary stocks.

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