[Good Morning Stock Market] KOSPI Falters Amid New York Stock Market Plunge... Volatility Due to Option Expiration Day Pressure

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 10th, the domestic stock market is expected to retreat. The sharp decline in the New York Stock Exchange after a three-day rally is likely to weigh on the market. The New York Stock Exchange turned downward due to uncertainties surrounding the midterm elections and the cryptocurrency crash. Considering it is an options expiration day, fluctuations are expected to widen depending on foreign futures trends, and a weak trend is anticipated as the market braces for the release of the U.S. Consumer Price Index (CPI).

Cryptocurrency Crisis Amid U.S. Midterm Election Uncertainty

The U.S. New York Stock Exchange closed sharply lower after a 'three-day rally.' Uncertainty over the midterm election results and signs of collapse in the cryptocurrency market intensified risk-averse sentiment, causing a significant retreat. On the 9th (local time), the Dow Jones Industrial Average closed at 32,513.94, down 646.89 points (1.95%) from the previous session. The Standard & Poor's (S&P) 500 index plunged 79.54 points (2.08%) to 3,748.57, and the tech-heavy Nasdaq index dropped 263.02 points (2.48%) to 10,353.17.

Uncertainty over the November 8 midterm election results, where the Republican Party was expected to win, caused market anxiety. Investors had hoped that if the Republicans took control of Congress, they would block the Democrats' tax hikes and fiscal spending plans. However, a tight race in the Senate and strong performance by the Democrats in the House cooled investor sentiment.

The liquidity crisis at the global cryptocurrency exchange FTX triggered a major crash in key cryptocurrencies, negatively impacting tech stocks. Particularly, after reports emerged that Binance, the world's largest cryptocurrency exchange, might withdraw from its intention to acquire FTX, the sell-off in tech stocks accelerated.

On the day, Roblox (-21%), Robinhood (-13.8%), Coinbase (-9.5%), and Zoom Video (-8.3%) all plunged simultaneously, causing the ARK Innovation ETF led by Cathie Wood to fall to its lowest level since March 2020, right after the COVID-19 outbreak.

Tesla also plunged 7.2% following CEO Elon Musk's sale of shares worth approximately $4 billion to fund his Twitter acquisition. This brought Tesla's year-to-date decline close to 50%.

The market appears to be taking a breather ahead of the U.S. CPI release scheduled for the next day. Experts expect the year-over-year CPI increase to slow to 7.9% in October from 8.2% in September.

Seo Sang-young, Researcher at Mirae Asset Securities

The decline in the U.S. stock market due to the Republican Party's narrow midterm election victory, the resulting dollar strength, and increased volatility in the cryptocurrency market is expected to weigh on the Korean stock market. In particular, the Philadelphia Semiconductor Index's 3.14% drop amid dollar strength and semiconductor sector weakness is likely to burden related stocks. Additionally, although the impact on the Korean market has been limited, issues such as economic slowdown due to China's COVID-19 lockdowns and the significant decline in the U.S. energy sector are also concerns.

Meanwhile, the OECD leading economic indicator, which reflects the global economy, recorded 98.4 due to declines in the European region, indicating continued slowdown and posing a burden on the stock market. This could affect the export-dependent Korean economy. However, since the decline is gradually easing, the risk of further deterioration is not high. Considering this, the Korean stock market is expected to start down about 1%, with fluctuations widening depending on foreign futures trends on the options expiration day.

Han Ji-young, Researcher at Kiwoom Securities

Typically, from October of years with major U.S. political events such as midterm or presidential elections in November, uncertainty over the government's future policy direction increases market volatility. After the election, markets tend to feel relief as uncertainty is resolved. There was some expectation that the recent market rebound would follow the historical pattern of post-election stock gains. However, this election seems to deviate from that pattern due to the ongoing close race between the Democrats and Republicans.

Among the three remaining battleground states, assuming victories based on current vote counts in Arizona (Democratic lead, 72% counted) and Nevada (Republican lead, 80% counted), a Republican advantage of 50 seats to 49 seats for Democrats would be established. The issue lies with Georgia. Neither the Democrat (49.2%) nor the Republican (48.7%) secured a majority, leading to a runoff election between the two candidates on December 6. The runoff results could flip control between Republican takeover or Democratic defense.

If the Republicans control both chambers, the Biden administration's overall policy framework will remain unchanged, but detailed policy changes related to the contentious Inflation Reduction Act (IRA) are possible. This could affect sentiment in eco-friendly sectors such as solar power, electric vehicles versus traditional automobiles, energy, and healthcare, as well as traditional industry stocks. Even before the election, funds betting on a 'Red Wave' (Republican sweep) had flowed into the market.

Political uncertainty remains in the market, and short-term stock volatility is expected to increase, especially in related sectors. Nevertheless, the existing view that political events will not significantly affect the market's overall direction (a box range path until year-end) remains valid. While short-term volatility may increase until the Georgia runoff on December 6, the overall market trajectory will likely depend on existing macro events such as the CPI and the Federal Open Market Committee (FOMC) meetings.

Considering the above, the domestic stock market is expected to show a weak trend influenced by favorable foreign demand conditions but pressured by U.S. midterm election uncertainties affecting major sectors such as semiconductors, big tech, and energy, as well as caution ahead of the October CPI release (consensus 7.9%).

Given that after the IRA bill announcement, differentiation in stock prices and foreign demand between secondary battery (cells, materials) and automobile sectors appeared in the domestic market, these sectors are also expected to experience increased price volatility today.

Additionally, although Binance had expressed intent to acquire FTX, which is facing a liquidity crisis, some foreign media report that Binance abandoned the acquisition due to accounting issues found during due diligence.

As a result, major coins such as Solana (-45%, based on Upbit), Bitcoin (-13%), and Ethereum (-16%) are experiencing simultaneous sharp declines, which is expected to constrain risk appetite not only in domestic cryptocurrency-related stocks but also across the broader market.

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