[MarketING] Taking a Break When Dizzy Is Also a Strategy

KOSPI Starts Higher Then Turns Lower
Market Expected to Remain Cautious Ahead of US Employment Report

[Image source=Yonhap News]

The KOSPI has been declining for the second consecutive day. This is interpreted as a result of increased market caution ahead of the U.S. employment report scheduled for the 10th (local time). Due to heightened volatility in the stock market following each economic indicator release, making it difficult to establish response strategies, some opinions suggest that taking a break for the time being is also a viable strategy.

KOSPI Starts Up but Turns Down

As of 10:20 a.m. on the 9th, the KOSPI was at 2,428.91, down 3.00 points (0.12%) from the previous session. The KOSDAQ fell 8.11 points (1.0%) to 805.84. Both indices started higher but then turned downward.

Although Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), continued hawkish remarks before the House of Representatives, most of these were already priced into the market the previous day, resulting in a mixed close for U.S. stocks. On the 8th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.18% from the previous day, while the S&P 500 rose 0.14%, and the Nasdaq increased by 0.40%.

Chairman Powell held a monetary policy hearing before the House following his appearance in the Senate the previous day. He maintained a hawkish stance by mentioning the possibility of accelerating rate hikes if rapid tightening is necessary, maintaining restrictive monetary policy to stabilize inflation, and the potential upward revision of the terminal rate forecast at the March Federal Open Market Committee (FOMC) meeting.

Since Powell’s hawkish views were already reflected the previous day, the impact of his remarks on the market appeared somewhat diminished. Ji-young Han, a researcher at Kiwoom Securities, analyzed, "Considering that the U.S. stock market narrowed losses and rebounded late in the previous session, the market seems to be digesting uncertainties related to the benchmark interest rate decision through a series of price adjustments. Although Powell strengthened his hawkish stance, the March rate hike level is not yet determined, and his mention of the need to confirm inflation indicators such as employment and prices acted as a slight relief factor."

Sang-young Seo, a researcher at Mirae Asset Securities, explained, "While concerns about a recession due to prolonged high U.S. interest rates are expected to continue limiting gains, expectations that the Fed may not significantly change its tough policy stance, based on the Beige Book and the employment data released that day showing a slowdown in wage growth, could have a positive effect on the domestic stock market." According to the ADP National Employment Report released that day, U.S. private sector employment increased by 242,000 in February, exceeding the forecast of 205,000. Wages in February rose 7.2% year-over-year, a slower increase compared to January’s 7.3%. Seo analyzed, "Although the number of employed persons increased, weekly employment figures show a slowdown starting in February and even a decline in late February, indicating a contraction in the employment market. Wage levels remain high, but the wage growth for existing employees slowed from 7.3% to 7.2%, and for job changers, it decreased significantly from 14.9% to 14.3%."

The Fed’s Beige Book, a report on economic conditions, was less hawkish than Powell’s remarks, stating that the economy had not significantly improved over several months amid uncertainty and that wage pressures had eased in some Fed districts.

Market Fluctuations Make Direction Hard to Determine

Volatility in the stock market is increasing due to interpretations of Fed policy directions and economic indicators, making it more difficult for investors to respond.

Jaehyuk Han, a researcher at Hana Securities, said, "Before the FOMC, stock investors are expected to show behavior similar to last year in response to Powell’s remarks. The difficulty of the stock market will increase due to the high volatility that follows each data release and its interpretation."

Currently, the possibility of a downward trend is considered higher than upward movement. Han explained, "The KOSPI has entered a box range of 2,400 to 2,500 and continues to move sideways within it. Under current conditions, the downside risk is higher. The won-dollar exchange rate, which surged in February, is burdensome for foreign investors, foreign inflows that were explosive in January have weakened significantly, earnings estimates are declining, and stock prices have risen, creating valuation pressure." High credit balance amounts are also a burden, as these short-term funds can amplify volatility in an already volatile market.

In a situation where market response is difficult, taking a break is also considered a strategy. Han said, "The condition for winning in the market is profit, but the condition for participating is having a balance. In a situation where there are more negative factors than positive ones, closing positions and taking a break can also be a good strategy."

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