Stock Market, Short-Term Uncertainty Resolved but...

Concerns Over Economic Recession Due to High-Intensity Tightening
Price Stability Also Not Guaranteed
Long-Term Positive Momentum Difficult to Sustain

[Asia Economy Reporters Junho Hwang, Jaehee Kwon] As the uncertainty is removed following the U.S. Federal Reserve's giant step (a 0.75% base rate hike), the stock market is rebounding, but it is expected to be difficult for the positive momentum to continue in the long term.

An additional giant step is scheduled for next month, but there is no guarantee that inflation will be controlled, and the possibility of an economic recession due to high-intensity tightening is also emerging, making a trend reversal difficult, analysts say.

According to the Korea Exchange on the 16th, the KOSPI opened at 2481.66, up 34.28 points (1.40%).

It then expanded its gains to the 2% range, aiming to reclaim the 2500 level.

Like the U.S. market session held the previous day, it is experiencing a short-term rally due to the resolution of uncertainty. However, the effect of resolving uncertainty is unlikely to continue in the mid to long term.

Han Ji-young, a researcher at Kiwoom Securities, analyzed that since the second half of last year’s Federal Open Market Committee (FOMC) meetings, there have been many unusual cases of stock price reactions on the day of and the day after the FOMC, suggesting that there is a possibility of increased stock price volatility during the 1-2 trading days as the market reinterprets the FOMC results.

The Fed’s 75 basis point (bp) hike is the first since 1994.

At that time, the KOSPI rose 0.17% to 1120.63 on the 17th, after the base rate hike announcement.

However, it then fell for seven consecutive trading days.

By the end of the same month, it dropped to 1069.48.

The possibility that another giant step could be decided next month is also a burden.

Kim Myung-sil, a researcher at Hi Investment & Securities, pointed out that Fed Chair Powell’s statement that a 75bp hike could occur in July suggests that high-intensity tightening may continue several times, and that the possibility of tightening intensifying until the end of the year remains a concern.

In particular, since the Fed has chosen price stability over economic recovery, the fact that price stability cannot be guaranteed could be another source of uncertainty.

Researcher Kim forecasted that in the worst-case scenario, if inflation is not controlled despite the high interest rate environment, a faster-than-expected economic recession could occur.

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