[Good Morning Stock Market] US Stocks Plunge Further Amid 'Giant Step' Concerns... Will KOSPI Fall Below 2500?

[Asia Economy Reporter Myunghwan Lee] On the 14th, the domestic stock market is expected to decline for the second consecutive day following the previous day. This is due to the U.S. stock market sharply falling amid concerns over the Federal Reserve's (Fed) aggressive monetary policy to curb high inflation.

On the 13th (local time), major U.S. stock indices all experienced significant declines. The tech-heavy Nasdaq index plummeted 4.68% (530.80 points) to close at 18,809.23, the Dow Jones Industrial Average fell 2.79% (876.05 points) to close at 35,516.74, and the S&P 500 index dropped 151.23 points (3.88%) to finish at 3,749.63. Having fallen more than 20% from its January 3 peak of 4,796.56, the market officially entered a bear market. This is the first time since March 2020, during the early stages of the COVID-19 pandemic, that the S&P 500 has met the bear market criteria based on closing prices.

Before the market closed, a Wall Street Journal (WSJ) report suggested that the Fed might consider a 'giant step' (a 0.75 percentage point rate hike at once) rather than a 'big step' (a 0.5 percentage point hike) at the Federal Open Market Committee (FOMC) meeting on June 14-15, which intensified the downward trend sharply.

Considering this, the domestic stock market on the 14th is expected to start with a decline of around 1%, followed by increased volatility. Given that the KOSPI closed at 2,504.51 the previous day, it is anticipated to open below the 2,500 level.

Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities: "KOSPI starts down 1%... volatility expected to increase"

On the 14th, the KOSPI is expected to start down around 1% and experience increased volatility as it awaits the FOMC results.

The sharp decline in the U.S. stock market due to concerns over the Fed's aggressive monetary policy is expected to act as an additional downward factor for the Korean stock market. The 1-year expected inflation rate announced by the New York Federal Reserve Bank the previous day rose to 6.6%, reflecting ongoing concerns about high inflation. Additionally, the slowdown in the OECD leading economic index and the narrowing of the U.S. long- and short-term interest rate spread have highlighted recession concerns, which also dampen foreign investor sentiment.

The burden of a potentially more aggressive rate hike stance than expected in the FOMC results to be announced on the 15th and Fed Chair Jerome Powell's press conference is another factor contributing to the stock market decline. Particularly, the probability of a 0.75 percentage point rate hike at the July FOMC has reached 70%, increasing concerns about Powell's remarks at the June meeting, which also weighs on the market.

Jiyoung Han, Researcher at Kiwoom Securities: "KOSPI starts down... further index level downsides are limited"

On the 14th, the domestic stock market is expected to show a downward trend amid lingering inflation shock effects, sharp declines in advanced economies' stock markets, and FOMC-related anxiety.

The KOSPI, which closed at 2,504.51 on the 13th, is currently under threat of breaking its long-term support level of 2,476. With major market participants' buying momentum missing, it is difficult to make premature assumptions about the index's bottom at this point. However, considering that valuations are approaching historically low levels, further significant declines in the index are expected to be limited.

Volatility is expected to continue until the June FOMC results are announced on the 15th. Although a minority view, there are extreme forecasts of a 1 percentage point rate hike at the June FOMC, making it crucial to see how strong the Fed's rate hike will be, whether the market will interpret the Fed's post-FOMC stance as additional negative news, or as a sign that negative factors are dissipating.

However, considering that the Nasdaq's decline from its peak is about 31%, surpassing the 28% drop during the COVID-19 pandemic, there is a possibility that bottom-fishing buying will emerge to support the index's downside.

Attention should also be paid to price changes in the cryptocurrency market during trading hours. Another cause of recent corrections in risky assets such as stocks is the crash of major cryptocurrencies like Ethereum. The prices of major cryptocurrencies fell sharply due to the withdrawal suspension incident at Celsius, a crypto-backed lending company.

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