Nasdaq Drops 2.54% Sharply: Why... Major Countries' Tightening Moves + Rotation of Leading Stocks

[Photo by AFP Yonhap News]

[Asia Economy Reporters Byunghee Park, Minji Lee] Major tech stocks such as Apple (-3.93%) and Tesla (-5.03%) plunged, causing the Nasdaq index, which is tech-stock-centered, to drop sharply by 2.54% on the 16th (local time). The decline in the Nasdaq index was the largest since September 28th (-2.83%), when concerns over tightening intensified and U.S. Treasury yields surged.

The mood reversed within a day and a half from the previous day’s rally, when the U.S. Federal Reserve (Fed) doubled the tapering (asset purchase reduction) scale and hinted at three interest rate hikes next year.

Market analysts attribute the impact to the Bank of England (BOE), the UK’s central bank, showing a stronger-than-expected tightening stance. On the day, the BOE warned of the risk of a sharp rise in inflation and raised the benchmark interest rate from 0.1% to 0.25%. The UK became the first G7 country to raise its benchmark interest rate since the COVID-19 pandemic.

Initially, the market expected a rate hold rather than a hike, given the recent surge in inflation and the UK government’s declaration of a state of emergency on the 12th due to the spread of the Omicron variant. The BOE’s somewhat unexpected decision to raise the benchmark rate is interpreted as a factor causing concerns that tightening moves by major countries could accelerate, leading to the decline in the New York stock market. Meanwhile, the European Central Bank (ECB) kept its benchmark interest rate at 0% but decided to end its COVID-19 response bond purchases (PEPP) by the end of March next year.

The Wall Street Journal reported that "some analysts pointed out that the outlook for interest rate hikes has reduced the appeal of growth stocks."

On the other hand, there is also analysis that the Nasdaq index plunged due to a change in leading stocks. As it is the year-end before earnings announcements and stock prices have already risen significantly this year, a differentiated market is emerging as investors sell sectors that have risen a lot and switch to relatively less-risen sectors.

In fact, while the Nasdaq index plunged due to tech stock weakness, the S&P 500 index fell only 0.87%, and the Dow Jones index’s decline was limited to 0.08%. Bank stocks such as Goldman Sachs (1.91%) and JPMorgan Chase (1.56%) showed strength, reducing the Dow’s decline. Although the S&P 500 index fell, only three of its 11 sector indices declined: technology (-2.86%), discretionary consumer goods (-2.23%), and telecommunications (-0.58%), clearly showing a differentiated market.

Frank Grets, an analyst at asset management firm Wellington Shields, said, "The Nasdaq index fell as the leading stocks shifted from technology to other sectors," adding, "This trend is unlikely to be temporary."

Unlike the U.S., the domestic stock market showed a solid performance on the morning of the 17th. As of 10:18 a.m. on the 17th, the KOSPI stood at 3,013.90, up 0.23% (7.05 points) from the previous trading day. The KOSPI started the day sharply down by 0.71% (21.21 points) at 2,985.20 but reduced its losses early in the session and turned positive.

The KOSPI’s rise is analyzed to be driven more by the resolution of policy uncertainties than concerns over tightening. Sangyoung Seo, a researcher at Mirae Asset Securities, said, "The decline in the U.S. Nasdaq index was partly due to supply-demand volatility caused by the simultaneous expiration of futures and options on the 18th," adding, "Despite the shock in the U.S. stock market, the impact on the domestic market is not significant."

Since tightening concerns have suppressed the stock market so far, some see this as a potential catalyst for further KOSPI gains. In Korea’s case, having preemptively raised benchmark interest rates, it is analyzed that even if tapering accelerates, the impact will not be significant. Jungwon Kim, a researcher at Hyundai Motor Securities, said, "The KOSPI is in a state where valuation pressure has eased amid inflation concerns and the Fed’s asset purchase reduction phase," adding, "The supply chain disruptions that affected inflation are expected to enter a resolution phase next year, which is also positive for the index."

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