[Good Morning Stock Market] Powell's Resolute Remarks 'Dampen Investor Sentiment'... Tightening Headwinds Make KOSPI Volatility Inevitable

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[Asia Economy Reporter Lee Seon-ae] On the 22nd, the domestic stock market is expected to decline. The Federal Reserve's (Fed) determination to strengthen tightening and the rapid rise in interest rates are acting as burdens, making a weak trend inevitable. Since it is the earnings announcement period, differentiation by sector and stock based on fundamentals is expected to be significant.

The U.S. New York stock market closed lower across the board. Fed Chair Jerome Powell strongly hinted at the possibility of a 50bp (1bp=0.01 percentage point) interest rate hike, causing investor sentiment to shrink. Many analyses also suggest that the driving force of corporate strong earnings pushing up stock prices has weakened compared to before. On the 21st (local time) at the New York Stock Exchange, the Dow Jones Industrial Average, which gathers blue-chip stocks, closed at 34,792.76, down 1.05% from the previous trading day. The large-cap-focused Standard & Poor's (S&P) 500 index recorded 4,393.66, down 1.48%. The tech-heavy Nasdaq index closed at 13,174.65, down 2.07%. Additionally, the small- and mid-cap-focused Russell 2000 index fell 2.49%.

◆Sangyoung Seo, Researcher at Mirae Asset Securities= The Korean stock market rose the previous day, positively influenced by the reversal of U.S. Treasury yields and strong earnings from major companies such as Tesla. Additionally, the electronics sector led the rise due to improved earnings from ASML and IBM, and the secondary battery material stocks showed strength due to Tesla's improved earnings, which was also a factor in the rise. However, the Netflix earnings shock and NAVER's poor earnings announcement caused related stocks to fall, limiting the index's rise. Due to these factors, the KOSPI rose 0.35%, and the KOSDAQ also increased by 0.08%.

The fact that the U.S. stock market started strongly higher early in the session due to the Tesla effect but widened losses due to tech stock sell-offs amid a sharp rise in Treasury yields is a burden on the Korean stock market. In particular, Powell's assertion that globalization has clearly slowed could dampen investment sentiment toward Korea, which is highly export-dependent, adding to the burden. Furthermore, ECB President Lagarde's expression of concerns about the economy and the weak Korean won suggest that foreign investor flows are also negative, which is expected to weigh on the Korean stock market.

However, the fact that China's Ministry of Commerce is expanding measures to stimulate the economy, such as announcing targeted policies to boost consumption, is positive. Increased Chinese consumption can lead to increased Chinese exports, which is favorable for the Korean stock market. Considering this, the Korean stock market is expected to start down about 1%, but limited fluctuations are anticipated ahead of the U.S. large tech companies' earnings season, which generally is expected to report better-than-expected results.

◆Jiyoung Han, Researcher at Kiwoom Securities= The U.S. stock market surged more than 1% early in the session, buoyed by Tesla's (+3.2%) earnings surprise, but later gave up all gains due to Fed Chair Powell's hawkish remarks, closing with a drop of more than 1%.

With the probability of a 50bp rate hike at the May Federal Open Market Committee (FOMC) at around 97%, Powell's remarks supporting a 50bp hike were nothing new. However, it is necessary to note that the probability of a 50bp hike in June surged to 39%, a 75bp hike to 60%, and the probability of a 50bp hike in July also rose to 48%.

Powell mentioned that the current supply shortage cannot be resolved by the Fed and that he does not expect (though it is possible) the inflation peak-out in March, which heightened concerns about future FOMC meetings and once again triggered tightening anxiety. In other words, the market had reflected in stock prices the expectation that the tightening intensity would not increase further at this point, but as the Fed's determination to respond to inflation strengthens, the gap between the Fed and the market appears to be widening again.

Starting next week, the Fed enters a blackout period during which Fed officials are prohibited from speaking, temporarily halting communication between the Fed and the market. Ultimately, the market needs to digest the strengthened tightening resolve once again before the May FOMC, and volatility in the stock market is expected to increase during this process. However, since the beginning of the year, stocks of companies that have shown sustained earnings growth during the market correction have been resilient, and considering that the first-quarter earnings season is currently underway, stock price movements between sectors and themes are expected to vary until the May FOMC depending on individual earnings issues.

Today, the domestic stock market is also expected to show a weak trend due to the burden of Powell's remarks on tightening and the rapid rise in interest rates. However, considering that despite the high won-dollar exchange rate level, exchange rate volatility itself remains low, and that the recent stock market rebound momentum has been sluggish compared to other markets, the adjustment pressure is not expected to be significant. During the session, the market is expected to show sectoral differentiation influenced by earnings results of major companies such as KB Financial Group, Shinhan Financial Group, and Hyundai Engineering & Construction.

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