[Good Morning Market] "US Stocks Rise on Strong Corporate Earnings, 'King Dollar' Concerns Persist"

Nasdaq Rises 1.58% on Strong Netflix Earnings
Semiconductor Support Bill Sustains Gains in Major Tech Stocks

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] The U.S. New York stock market closed higher on the back of strong corporate earnings. Although the market showed some volatility due to a dollar rally sparked by growing concerns over a European economic slowdown during the session, major tech stocks in semiconductors and software continued their upward momentum, leading to a positive close.

Sangyoung Seo, Researcher at Mirae Asset Securities: “Pay attention to the won currency flow amid the dollar strength triggered by Italy”

The driving force behind the U.S. stock market was Netflix. Netflix rose 7.36%, and with the continued strength in tech stocks, the Nasdaq index climbed 1.58%. Netflix’s strong earnings report and fewer-than-expected subscriber losses were positive factors.

[Image source=Yonhap News]

During the session, the gains narrowed as concerns over economic instability in the Eurozone intensified. This was largely due to heightened political uncertainty in Italy. The euro’s weakness led to a stronger dollar. Although the confidence vote for Prime Minister Draghi’s cabinet was passed, major parties largely abstained from voting, suggesting the coalition government has effectively collapsed. Consequently, Prime Minister Draghi is expected to announce his resignation, with early elections anticipated in late September or early October.

Notably, the U.S. stock market showed strength centered on the semiconductor and software sectors. The U.S. Senate passed a procedural vote on the semiconductor support bill, raising expectations for its approval. As a result, the Philadelphia Semiconductor Index rose 2.5%, reflecting the sector’s strength. The semiconductor industry support bill is a separate piece of legislation extracted from the broader U.S. competitiveness bill previously passed by both the House and Senate. It enjoys bipartisan support from both Democrats and Republicans, increasing the likelihood of its passage.

On the 21st, the domestic stock market is expected to benefit from the positive momentum of the U.S. market. Strength is anticipated particularly in semiconductor and software sectors. Although the dollar’s strength remains a concern, considering market changes, an upward start is forecasted.

Jaehyun Kang, Researcher at Shinhan Financial Investment: “A change in monetary policy by year-end is necessary for a sustained rebound”

While the stock market continues its sharp rebound, it is still too early to expect a sustained upward trend. In 2018 and 2019, global stock markets showed a steady rise after inflation was controlled and expectations for interest rate cuts increased, but such conditions are not yet in place now.

Above all, inflation is different. With oil prices holding around $80 per barrel, it is estimated that inflation will only approach 2% by at least the end of the first quarter next year. Although it is fortunate that expected inflation is declining, there is still a long way to go for inflation. The one-year ahead expected inflation, which leads consumer prices, must fall to 3% for the consumer price inflation rate to return to the 2% range.

The U.S. Federal Reserve’s (Fed) pause on rate hikes is unlikely before year-end. The prevailing view is that the December rate hike will be the last before a freeze. A confirmed shift in the Fed’s policy stance next year is necessary for stock prices to rise.

The possibility of credit spread widening is also a concern. It is expected to rise further reflecting an economic slowdown, and since controlling inflation requires tolerating increased unemployment for some time, this possibility is even higher. In conclusion, only by year-end, based on changes in monetary policy, can a full-fledged sustained rise in the stock market be expected.

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