[Good Morning Stock Market] Growing Valuation Pressure... All New York Markets Close Lower

Selling Pressure Centered on Software, Electric Vehicle, and Medical Diagnostic Stocks
US Resumes Delayed Economic Recovery... "Low Possibility of Trend Reversal in Stock Price Direction"

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As the burden of corporate valuation (valuation) is emphasized, the New York stock market closed all down. However, there is an analysis that the focus should be on the economic direction or inflation rather than concerns about interest rate hikes and tightening.

On the 13th (local time), the New York stock market all fell. On the New York Stock Exchange that day, the Dow Jones Industrial Average closed at 36,113.62, down 0.49% (176.70 points) from the previous trading day. The S&P 500 index closed at 4,659.03, down 1.42% (67.32 points) from the previous session. The tech-heavy Nasdaq closed at 14,806.81, down 2.51% (381.58 points) from the previous trading day.

◆ Seo Sang-young, researcher at Mirae Asset Securities = Individual stocks showed changes in the US stock market. Netflix fell 3.35% compared to the previous day on news that intensified content competition and the resulting cost increase could slow growth. In addition, CS pointed out the high corporate valuation burden and lowered the target price. This seems to have triggered selling mainly in software, some electric vehicles, and medical diagnostics-related stocks with high valuation burdens ahead of earnings announcements.

However, since it is before the earnings season, the possibility of continued volatility expansion is not high. Market research firm FactSet estimated that the operating profit of S&P 500 companies in the fourth quarter of last year would increase by 21.8% compared to the same period last year. If solid earnings are supported, the valuation burden can also be alleviated. Considering this, solid earnings and this year's outlook have become important in this earnings season.

Delta Air Lines, which raised its future outlook along with solid earnings that day, rose 2.12% compared to the previous day. Boeing also rose 2.97% as news spread that Chinese regulatory authorities would allow the 737 Max service. The market's characteristic was that stocks with not large valuation burdens showed an upward trend as the airline industry showed strength amid expectations of earnings improvement and earnings recovery was mentioned.

(Provided by NH Investment & Securities)

◆ Kim Hwan, researcher at NH Investment & Securities = Last month, the release of the Federal Open Market Committee (FOMC) minutes and improvement in major economic indicators highlighted concerns about the acceleration of the Federal Reserve's (Fed) economic normalization. Volatility in the financial market is expanding, reflecting four interest rate hikes and tapering policies within the year.

However, last month's economic indicators, which showed a positive trend, did not fully reflect the impact of the new COVID-19 variant 'Omicron.' The Omicron situation may delay the economic recovery somewhat, and if confirmed, the Fed's economic normalization is also likely to be delayed.

The economic direction is more important than the Fed's tightening policy implementation. Since 2015, the impact of the Fed's tightening policies such as interest rate hikes or asset reduction on the financial market's direction has been limited. Rather, after the tightening policy implementation, when the economy contracted, the pressure for stock price correction increased.

Currently, the US is in a situation where the deferred economic recovery is restarting. Thanks to the solid recovery of the consumer economy, the inventory replenishment cycle is expected to resume. In other words, considering the current economic direction, the possibility of a trend reversal in stock price direction is low.

◆ Moon Nam-jung, researcher at Daishin Securities = The phrase "It's darkest under the lamp" suits this month's stock market. Attention was focused only on the Fed's quantitative tightening, which is still in the discussion stage, and no attention was paid to the easing of inflation that actually determines the stock market direction in January.

Inflation concerns, along with supply chain bottlenecks, were variables feared to hold back this year's stock market. Depending on the direction of inflation, the Fed can have flexibility in the timing of this year's base rate hikes and quantitative tightening implementation. Since asset purchase reduction (tapering) is still ongoing and interest rate hikes have not yet started, prematurely focusing on dependent variables is out of order.

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