[MarketING] Conflicting Economic Indicators... Response Becomes Difficult

KOSPI Rises for Second Day...Limited Gains
Confusion Amid Economic, Inflation, and Interest Rate Uncertainties

[Asia Economy Reporter Song Hwajeong] The KOSPI opened with a slight upward trend. Recently, the uncertainty regarding the paths of the economy, inflation, and interest rates has increased due to mixed economic indicators from the U.S., making it difficult for investors to respond to the market.

KOSPI Opens Slightly Higher

As of 10:25 a.m. on the 24th, the KOSPI was at 2448.07, up 8.98 points (0.37%) from the previous day. The KOSDAQ rose 1.24 points (0.16%) to 784.52. Both indices have continued their upward trend for two consecutive days, but the gains remain limited.

This strength is interpreted as a result of the U.S. stock market's rise the previous day. On the 23rd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.33%, the S&P 500 increased 0.53%, and the Nasdaq rose 0.72%, all closing higher compared to the previous day. Although the market closed higher, it showed increased volatility with repeated fluctuations during the session. The market started higher thanks to Nvidia's strong earnings but then turned downward before recovering as buying interest focused on growth stocks, ending the day on an upward note.

The U.S. GDP growth rate for Q4 last year was 2.7% annualized. This is a preliminary figure, revised downward by 0.2 percentage points from the flash estimate of 2.9%. The U.S. growth rate is announced in three stages: flash estimate, preliminary, and final. The downward revision was mainly due to a 1.4% downward adjustment in personal consumption expenditures. Consumer spending for Q4 last year was revised down from the initial flash estimate of 2.1% growth to 1.4%. Seosangyoung, a researcher at Mirae Asset Securities, explained, "The personal consumption expenditure (PCE) price index was revised upward from 3.9% to 4.3%, indicating higher inflation, while personal consumption was revised downward, highlighting the burden on the economy."

Although GDP was revised downward, other indicators released that day showed a solid economy. Weekly initial jobless claims were 192,000, below both the previous week's 195,000 and the forecast of 200,000. Continuing claims were 1,654,000, also below the previous week's 1,691,000 and the forecast of 1,700,000, demonstrating the robustness of the U.S. labor market. The Chicago Fed National Activity Index for January was 0.23, recovering from the previous month's (-0.46%) weakness and marking the first positive reading since September last year. The Chicago Fed National Activity Index had stayed negative for three consecutive months since recording -0.01 in October, fueling recession concerns.

Due to mixed indicators and ongoing uncertainty about the paths of the economy, inflation, and interest rates, investors find it difficult to respond to the market. Researcher Seo said, "A characteristic of the recent stock market is the continued sensitivity to individual company issues," adding, "Ultimately, while the economy remains solid, its momentum is gradually cooling, and the market is showing increased sensitivity to negative factors without a clear direction, reflecting a heightened desire for profit-taking."

Challenging Responses, Focus on Earnings Momentum and Overlooked Stocks

As market responses become more difficult, it may be necessary to pay attention to stocks with improving earnings momentum or those overlooked during the rebound.

Researcher Kang Jaehyun of SK Securities said, "Although the economy appears to be in decent shape, the most hawkish members of the U.S. Federal Reserve (Fed) are not yet considering a tightening path with interest rates above 5.5% as the base scenario," adding, "Therefore, until the employment data is released early next week, the likelihood of interest rates rising is low, and the market will likely postpone judgments on monetary policy paths until the employment report." He continued, "The stock market may enter a phase where it is difficult to regain upward momentum, leading to a stock-specific market. It is necessary to focus on stocks with improving earnings momentum."

Researcher Choi Yujun of Shinhan Investment Corp. said, "The Purchasing Managers' Index (PMI) for February in the Eurozone and the U.S. was stronger than expected, and the labor market is also showing strength, but U.S. consumer goods companies expect earnings deterioration this year, reflecting mixed views on the economy," analyzing, "The stock market has become more volatile reflecting increased tightening intensity, and amid a rotating market, the duration of sectoral rallies has shortened."

Due to mixed views on the economy, there is strong cautious sentiment regarding the index's direction. Researcher Choi explained, "The index's upper and lower bounds are limited, causing repeated narrow fluctuations, and the direction of spot supply and demand has become unclear," adding, "The main market movement is cautious, with investors holding their positions tightly and showing strong watchfulness regarding the index's direction, whether up or down."

With tightening expectations strengthening, sectors with low price-to-earnings ratios (PER) are expected to be relatively favored, making it necessary to focus on previously overlooked stocks. Researcher Choi said, "Until early this month, high-PER sectors were favored due to perceptions of the late tightening phase, but as tightening expectations have strengthened, the market has entered a phase where low-PER sectors are relatively favored," adding, "This is a phase with strong sector rotation, and overlooked stocks with lower valuation burdens are expected to perform relatively well." He further suggested considering sectors such as insurance, automobiles, trading companies & capital goods, steel, and machinery.

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