[Good Morning Stock Market] "Domestic Stocks Expected to Start Lower Amid Inflation Concerns"... Entering a Cautious Trading Phase

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The U.S. stock market declined, mainly in consumer-related companies, after Walmart lowered its future outlook due to high inflation. On the 26th (local time), the Dow Jones Industrial Average closed at 31,761.54, down 228.50 points (0.71%) from the previous session. The S&P 500, focused on large-cap stocks, ended at 3,921.05, down 45.79 points (1.15%). The tech-heavy Nasdaq closed at 11,562.58, down 220.09 points (1.87%).

Additionally, e-commerce stocks also underperformed as news broke that Shopify would cut 10% of its workforce, causing its shares to plunge more than 14%, which dragged down related stocks such as Amazon. Furthermore, concerns over a recession in the Eurozone due to Russia's reduced natural gas supply led to a stronger dollar, which triggered selling pressure mainly on tech stocks.

The impact of Walmart's downward revision of earnings forecasts is expected to weigh on the domestic stock market on the 27th. The dollar's strength, supported by the euro's weakness, is also a burden. However, some predict that the impact of Walmart will be limited and that positive news in the semiconductor sector will help maintain a solid market despite a weak start.

◆ Seo Sang-young, Head of Media Content Division, Mirae Asset Securities = The U.S. stock market closed lower due to the strong dollar and the influence of Walmart and Shopify. The dollar strengthened against the euro as concerns over a Eurozone recession intensified following Russia's reduced natural gas supply.

Specifically, Russia recently cut natural gas supplies to Germany from 40% to 20% of usual levels, prompting the European Union (EU) to announce plans to reduce natural gas consumption. This negatively impacts the Eurozone economy, leading to euro weakness and dollar strength. The strong dollar also contributed to the decline in tech stocks due to earnings concerns.

The U.S. market's decline due to Walmart's downward earnings revision is a burden for the domestic market. However, since this was already reflected the previous day, the impact is expected to be limited. Although concerns about a recession due to changes in consumer behavior highlighted by individual companies' earnings reports are a burden, much of this has already been priced in, so the overall impact on the stock market is expected to be limited.

Moreover, the dollar's sharp rise supported by euro weakness could also be a burden. However, Microsoft and Alphabet showed solid performance in after-hours trading, and Texas Instruments, a U.S. semiconductor company, demonstrated strength with strong earnings and upward guidance revisions, which is positive for the semiconductor sector. The domestic market is expected to start down about 0.5% but maintain a solid performance following the previous trading day.

◆ Han Ji-young, Researcher at Kiwoom Securities = As confirmed by the International Monetary Fund (IMF) revised outlook the previous day, inflation and central bank tightening shocks are intensifying downward pressure on this year's economic growth rates globally (April forecast 3.6% → 3.2%), in the U.S. (3.7% → 2.3%), the Eurozone (2.8% → 2.6%), and Korea (2.5% → 2.3%). Although expectations for inflation peaking in the third quarter remain valid, the future direction of the stock market is expected to depend on the inflation trajectory and the Federal Reserve's policy intensity.

At the Federal Open Market Committee (FOMC) meeting scheduled for the 28th (local time), attention will focus not only on whether there will be a 75 basis point (1bp = 0.01 percentage point) rate hike but also on the guidance provided by Fed Chair Jerome Powell during the press conference regarding future rate increases. If strong guidance is not given at this meeting, the market is expected to feel relieved.

On this day, the domestic stock market is expected to enter a cautious trading session with limited movement, influenced by the IMF's downward growth revision, caution ahead of the July FOMC, and earnings events from major domestic companies such as SK Hynix, LG Chem, and Samsung Electro-Mechanics. However, the solid after-hours performance of Microsoft and Alphabet is expected to improve investor sentiment toward domestic growth stocks.

Additionally, the six-month lock-up period for LG Energy Solution shares is set to expire. It is important to note that on previous occasions, the stock price fell 1.9% on the day of a one-month lock-up expiration and 1.3% on the day of a three-month lock-up expiration. The lock-up expiration event, combined with FOMC caution, could cause distortions in supply and demand not only for the company involved but also for other large-cap stocks, leading to increased overall market volatility throughout the trading day.

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