Expectations for US CPI Easing... "Keep Growth Stock Bat Short"

August CPI Expected to Stabilize Downward
Steady Earnings Draw Attention to Secondary Battery and Entertainment Stocks

[Asia Economy Reporter Minji Lee] As the US prepares to announce the August CPI (Consumer Price Index), investor sentiment toward growth stocks appears to be improving. The Nasdaq index surged over 5% within a week. This is largely due to growing expectations that the CPI, which soared to over 9% in June for the first time in 41 years, will show a downward trend.

On the 13th, the US Nasdaq Composite Index rose sharply from 11,544.91 to 12,266.41 within a week since the 6th, marking a gain of over 5%. Although the index had declined by more than 10% since August 25 (12,639.27) following Federal Reserve Chairman Jerome Powell’s remarks at last month’s Jackson Hole meeting about continuing aggressive interest rate hikes, it has recently rebounded sharply. During the same period, Bitcoin, which tends to move in tandem with the Nasdaq index, rose by more than 15%.

The rise in the Nasdaq index and Bitcoin is closely related to expectations of a CPI decline. As inflation slowdown forecasts strengthen, uncertainties about further interest rate hikes have eased. Currently, market participants expect the US August CPI to be 8%, a 0.1 percentage point decrease from the previous month.

Lee Jae-sun, a researcher at Hyundai Motor Securities, said, "Growth stocks in IT software, gaming, entertainment, and media sectors experienced relatively pronounced correction pressure after Chairman Powell revealed his hawkish stance at the Jackson Hole meeting. If indicators suggesting inflation slowdown and a soft economic landing emerge after the August CPI announcement, it will provide momentum for a rebound until the September FOMC meeting."

In the domestic market, it is worth expanding interest in secondary battery and entertainment stocks. These sectors can act as defensive stocks unaffected by economic slowdown trends compared to other growth industries, and since profit growth is expected, investor sentiment is likely to concentrate on them. For secondary battery cell and material companies, price increases and benefits from the US IRA (Inflation Reduction Act) are anticipated. Next year, with the full-scale expansion of cell manufacturers’ facilities, the order backlog for equipment companies is also expected to increase significantly. The entertainment sector is seeing upward revisions in earnings expectations due to major artists’ album releases and concert activations.

However, securities experts generally agree that broad investor sentiment expansion toward growth stocks is unlikely. While some participants expect a more accommodative stance from the Fed due to inflation slowdown, the outlook for a Fed giant step (a 75 basis point rate hike at once) at the upcoming FOMC meeting on the 21st stands at 90%. The Fed’s projected terminal rate for this year was 3.4% as of the June FOMC, but it is now expected to rise to 3.8%.

Kim Il-hyuk, a researcher at KB Securities, said, “Recently, oil-exporting countries have taken steps to defend against falling oil prices, so it will take more time for prices to decline further. While it is positive that the market has confirmed a short-term bottom, it is difficult for capital inflows to increase until the market’s confidence in a sustained upward trend strengthens.”

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