[Good Morning Stock Market] The US Decides on 3 Consecutive 'Giant Steps'... How Far Will the KOSPI Fall?

[Image source=EPA Yonhap News]

[Asia Economy Reporter Myung-hwan Lee] On the 22nd, the domestic stock market is expected to experience increased volatility due to the U.S. Federal Reserve's (Fed) decision to implement a third consecutive giant step (a 0.75 percentage point increase in the benchmark interest rate at once).

On the 21st (local time), the Fed announced after the Federal Open Market Committee (FOMC) regular meeting that it would raise the benchmark interest rate by 0.75 percentage points. Accordingly, the current benchmark interest rate of 2.25?2.50% was raised to 3.00?3.25%. As inflation showed little sign of easing, the Fed took the unusual step of implementing three consecutive giant steps. At the same time, the U.S. benchmark interest rate once again surpassed Korea’s, causing a reoccurrence of the interest rate inversion phenomenon.

Fed Chair Jerome Powell’s press conference, in which he expressed an aggressive stance on rate hikes, is also expected to weigh on the market. Chair Powell emphasized, "Policy must remain at a restrictive level," adding, "This is to prevent greater pain in the future." Since the Fed is determined to raise the benchmark interest rate to a level that will tame inflation, this is interpreted as an intention to raise rates quickly. Regarding concerns that rapid rate hikes could lead to a recession, he firmly stated, "Delaying measures will only increase the pain."

The U.S. stock market also closed lower due to the Fed’s aggressive rate hike stance and recession concerns. On that day, the Dow Jones Industrial Average closed at 30,183.78, down 1.70% (522.45 points) from the previous trading day. The S&P 500 index fell 1.71% (66.00 points) to 3,789.93, and the tech-heavy Nasdaq index dropped 1.79% (204.86 points) to 11,220.19.

Sang-young Seo, Head of Media Content Division at Mirae Asset Securities: "U.S. aggressive rate hike stance is a burden... volatility will expand"

On the 22nd, the domestic stock market is expected to start with a decline of around 0.5% due to the Fed’s aggressive rate hikes and the strengthening dollar trend. Afterwards, a stock-specific market is expected to unfold.

The U.S. stock market’s confirmation of a more aggressive rate hike stance through a higher-than-expected interest rate forecast for this year, along with the decline following Fed Chair Powell’s remarks, is expected to weigh on the domestic market. Especially considering that the Fed reaffirmed its aggressive rate hike stance by expressing concerns about recession issues and prolonged inflation in the housing sector, increased volatility is inevitable.

Additionally, the strengthening dollar trend and the decline in long-term government bond yields reflecting recession concerns are expected to burden foreign investor demand. However, with Nvidia showing strength and improving investor sentiment across the semiconductor sector, the Philadelphia Semiconductor Index temporarily rose, suggesting that related stocks will maintain a solid performance.

Ji-young Han, Researcher at Kiwoom Securities: "Absorbing FOMC, downward pressure... focus on sectors like automobiles, IT, and defense"

On the 22nd, the domestic stock market is expected to face downward pressure as volatility expands while digesting the results of the September FOMC. Additionally, with Russia’s declaration of a general mobilization, concerns about further escalation with Ukraine or Western countries have emerged, so the market is expected to be influenced by related news during trading hours.

From a sector perspective, continuous attention is needed on sectors or groups of stocks with high earnings visibility. These sectors include automobiles and IT, which benefit from exchange rate effects and supply shortages, as well as defense stocks benefiting from the possibility of Russian escalation and Taiwan-related issues.

Since the market has faced downward pressure throughout the year due to concerns about the entrenchment of high inflation, unless this issue is resolved, the market’s upper limit is expected to be constrained within a box range. Furthermore, in such an environment, the importance of earnings growth is expected to increase, so the market’s momentum within the box range will likely depend on the results of the third-quarter earnings season starting in October.

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