[Good Morning Stock Market] US 4 Consecutive 'Giant Steps'... Will Domestic Stock Market Also Shake?

Fed Chair Powell: "The Upper Limit of Interest Rates Will Rise"
Nasdaq Drops Over 3% on His Remark
Domestic Stock Market Expected to Weaken Today... Undervalued Stocks Provide Downside Support

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] On the 2nd, the U.S. stock market surged intraday after the Federal Open Market Committee (FOMC) implemented a giant step (75bp rate hike), but later turned to a decline and closed lower as investor sentiment weakened following Federal Reserve Chair Jerome Powell's remarks in a speech that the terminal interest rate could be higher. The Dow Jones Industrial Average fell 1.55%, while the S&P 500 and Nasdaq indices plunged 2.5% and 3.36%, respectively.

The U.S. Federal Reserve (Fed) raised the benchmark interest rate by 75bp again following September. This marked the fourth consecutive giant step this year as a response to curb the burden of persistently high inflation. Chair Powell indicated that the pace of future hikes could slow down, but said the terminal rate level might be higher than previously expected.

◆ Gong Dong-rak, Researcher at Daishin Securities = Ahead of the November FOMC, the bond market went through a two-step consensus formation process. First, there was consensus on the size of the rate hike to be decided this time, with 75bp hikes prevailing in November due to the continued high consumer inflation rate in the 8% range. Therefore, this 75bp hike is interpreted as confirming prior expectations. The financial market was more focused on the upcoming schedule, especially whether the pace of rate hikes would slow down. Recent minutes and some Fed officials’ remarks emphasizing the need to slow down led to divergent views on whether December’s rate hike would be a big step or a giant step. In response, Chair Powell suggested that it would be appropriate to slow the pace of hikes at some point, possibly as early as December. This acknowledges the fatigue caused by repeated giant steps in raising rates. However, Powell explained that slowing the pace is a less important issue, and the terminal rate level could be higher than previously expected. Based on the current dot plot, Fed officials estimate the terminal rate of this hiking cycle at 4.6% (median), which is expected to rise to around 5%.

◆ Seo Sang-young, Researcher at Mirae Asset Securities = Considering that the U.S. stock market initially reacted to the FOMC with a weaker dollar and lower Treasury yields, and that the decline was centered on large tech stocks, the drop in the Korean stock market is expected to be relatively limited. However, Powell’s comment that the terminal rate level will be higher than the September forecast is a burden, as it is expected to weigh on foreign investor demand. Additionally, the employment report to be released this week and next week’s consumer price index results, which remain sources of volatility, also limit aggressive responses, adding to the burden. Taking this into account, the Korean stock market is expected to start with a decline of around 1.5% and then undergo a process of absorbing selling pressure.

◆ Han Ji-young, Researcher at Kiwoom Securities = The domestic stock market closed mixed yesterday amid cautious sentiment ahead of the November FOMC and profit-taking in secondary battery-related stocks, but foreign investors’ net buying and strong earnings from some companies like KakaoBank supported the market. Today, the market is expected to show a weak trend influenced by the sharp decline in the U.S. stock market, centered on big tech growth stocks such as Tesla and Amazon, amid renewed uncertainty over Fed policy following the November FOMC. Furthermore, Qualcomm’s (-4.1%) weaker-than-expected guidance due to demand weakness caused by a negative macro environment, leading to a roughly 6% drop in after-hours trading, is also expected to constrain investor sentiment in related domestic sectors. However, the undervaluation appeal of the domestic market, favorable foreign investor conditions due to policy uncertainties in China, and relatively better earnings compared to the U.S. market are expected to support the index’s downside.

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