[Good Morning Market] US Stock Market Plunge and Inflation Fear... Dark Clouds Over Domestic Market

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] On the 9th (local time), the U.S. stock market plunged sharply. The Dow Jones Industrial Average fell 1.99% (653.67 points) from the previous close to 32,245.70. The S&P 500 index dropped 3.20% (132.10 points) to 3,991.24, and the tech-heavy Nasdaq index closed down 4.29% (521.41 points) at 11,623.25. Inflation concerns and fears of an economic slowdown hit the U.S. stock market hard, and the S&P 500 index fell below 4,000 for the first time in a year since March 31 of last year based on the closing price. The decline in the U.S. stock market is expected to weigh on the domestic market on the 10th.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = The decline in the U.S. stock market amid growing concerns about a global economic slowdown is likely to be a burden on the Korean stock market. In particular, the sharp drop in tech stocks and the weakness in the energy sector due to the plunge in international oil prices could also be negative factors.

However, since most of the factors causing the decline had already affected the Korean stock market the previous day, the possibility of a continued downward trend in the Korean market is limited. Additionally, the fact that the inflation peak issue has been highlighted, considering the New York Federal Reserve's announcement of a slowdown in one-year expected inflation, is positive. The New York Fed announced that the one-year expected inflation rate fell from a record high of 6.6% last month to 6.3%.

Also noteworthy is that despite the sluggish U.S. stock market, defensive sectors such as consumer staples rose. This is presumed to be because these sectors have strong pricing power and can maintain a solid performance even amid high inflation and economic slowdown. Considering these points, the domestic market is expected to start lower and continue a stock-specific market while awaiting the upcoming U.S. Consumer Price Index release scheduled for this week.

◆ Han Ji-young, Researcher at Kiwoom Securities = All three major New York indices plunged due to expanded concerns about a global economic slowdown. While risk appetite shrank and the 10-year U.S. Treasury yield eventually turned downward, large tech stocks closed sharply lower.

Considering the economic surprise indices of major countries that have been rebounding since the end of last year, the fully employed U.S. labor market, and reopening demand, recession concerns are premature. However, the current market sentiment is problematic as it overreacts to negative factors with low probability and even interprets positive factors as negative, indicating a cooling of investor sentiment. Ultimately, if expectations for an inflation peak recover with the U.S. Consumer Price Index release in April, market instability is expected to ease. Until then, increased volatility is inevitable.

The domestic market is also expected to show a downward trend due to prolonged high inflation concerns and fears of tightening by the U.S. Federal Reserve, influenced by the sharp drop in the U.S. stock market. There is a possibility of intensified panic selling, but since stocks tend to recover quickly with even minor positive news in oversold areas, it is considered appropriate to avoid joining the panic selling at this point.

◆ Kim Young-hwan, Researcher at NH Investment & Securities = Doubts about the Fed's ability to achieve a soft landing for the economy expanded, and all sectors except consumer staples closed lower in the U.S. stock market. According to the New York Fed's April Consumer Price Index forecast, the one-year inflation expectation eased from the March peak of 6.6% to 6.3%, but the three-year inflation expectation rose for the fourth consecutive month from the March peak of 3.7% to 3.9%. This has increased concerns that inflation may last longer than expected. Uncertainty over U.S. corporate earnings and investor fund outflows due to rising U.S. interest rates continue. Sentiment deterioration and liquidity contraction in the U.S. stock market are expected to increase volatility.

The KOSPI index hit its lowest level of the year based on the previous day's closing price. The adjustment factors for the domestic market include rising corporate costs such as interest and raw materials, concerns over weak demand, and worsening foreign investor sentiment due to external negative factors. However, if limited to the domestic market, sensitivity to external uncertainties is considered relatively lower. Currently, foreign ownership in the KOSPI stands at 30%, the lowest level since 2010. It is possible that the period of active foreign selling of domestic stocks has passed.

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