[Good Morning Stock Market] US Market Volatility Expands vs Strong Earnings Expected... Diverging Outlooks for Domestic Market

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] The U.S. stock market closed higher due to strong corporate earnings. On the 18th (local time), the Dow Jones Industrial Average rose 337.98 points (1.12%) from the previous session to close at 30,523.80, the S&P 500, which focuses on large-cap stocks, ended 42.03 points (1.14%) higher at 3,719.98, and the tech-heavy Nasdaq index finished trading up 96.60 points (0.90%) at 17,724.0.

Following Bank of America (BoA) the previous day, Goldman Sachs also reported earnings that exceeded expectations, leading to gains in major bank stocks. Additionally, Lockheed Martin surged more than 8% as its earnings per share surpassed forecasts.

On the 19th, outlooks for the domestic stock market were mixed. Expectations for the Bank of England (BOE), the UK central bank, to delay quantitative tightening?which had driven gains in the previous trading day?disappeared after an announcement that it would begin on the 1st of next month due to trust issues. As a result, the U.S. stock market gave up early gains and experienced increased volatility, which is analyzed to be a burden on the domestic stock market.

On the other hand, some forecasts suggest that the domestic stock market will show an upward trend due to strong performances in major developed markets such as the U.S. and Europe and favorable outlooks for the third-quarter earnings season this year.

◆ Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities = U.S. industrial production in September increased by 0.4% compared to the previous month, improving from the previously reported 0.1% decline. Consumer goods rose 0.6%, and manufacturing also increased by 0.4%. Notably, the factory operating rate recorded 80.3%, up from 80.1% reported last month, easing recession concerns.

However, according to the National Association of Home Builders (NAHB) and Wells Fargo, the October Housing Market Index (HMI) fell 8 points from the previous month to 38, below the expected 44.

There were reports in the market that the BOE might delay quantitative tightening, but due to potential trust issues, it was ultimately announced that it would start on the 1st of next month. Following this news, U.S. Treasury yields, which had been falling due to weakening housing indicators, expanded their gains. The Nasdaq index also showed volatility, briefly turning negative. Nevertheless, considering that volatility in the UK financial market is in the process of easing, bond yield volatility persisted with gains narrowing or turning negative in the latter part of the session.

The domestic stock market rose the previous day as risk from the UK eased and the U.S. stock market showed strength, improving investor sentiment. However, considering that expectations for the BOE's delay in quantitative tightening?a factor behind the rise?disappeared, it is expected that the market will give back gains related to this and start lower. Additionally, news that Apple is reducing production of the iPhone 14 Plus late in the U.S. trading session also weighed on related stocks.

Nonetheless, the announcement of restructuring due to the contraction of the PC industry by Microsoft, a factor behind the relative weakness in the semiconductor sector, was made during the previous session and has been priced in, which is positive. Furthermore, the continued sharp decline in European natural gas prices has partially eased concerns about an economic slowdown in the Eurozone, improving investor sentiment. Netflix’s solid earnings report is also a positive factor. The domestic stock market is expected to start down about 0.3% and then proceed with the earnings season, leading to a stock-specific market.

◆ Ji-young Han, Researcher at Kiwoom Securities = Since the release of the U.S. Consumer Price Index (CPI) for September, volatility has been high in both U.S. and domestic stock markets, but much of the negative news has already been priced in, resulting in downside rigidity in the indices. The fact that the UK government, which was at the center of European financial instability, is effectively withdrawing its tax cut plan is also helping to improve the subdued market sentiment.

However, attention should be paid to the weak October Housing Market Index at 38 and the U.S. government's decision to release additional strategic petroleum reserves to curb rising oil prices. This means that even the U.S. stock market, which has enjoyed solid economic growth so far, will not be free from real demand contraction due to tightening, rising interest rates, and a strong dollar at some point in the future. It also suggests that the possibility of further worsening energy-driven inflation from both demand and supply sides is limited.

The domestic stock market is expected to show an upward trend supported by strong performances in developed markets such as the U.S. and Europe and favorable outlooks for the third-quarter earnings season. Although market interest rates remain high, with the U.S. 10-year Treasury yield exceeding 4%, considering Netflix’s surprise in third-quarter new subscribers (2.41 million, expected 1.07 million) and its stock price surge of over 10% in after-hours trading, investor sentiment for growth stocks, including related shares, is expected to improve in the domestic market as well.

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