[MarketING] Stock Market Trends to Become Clearer in Earnings Season

KOSPI Declines After 8 Trading Days
KOSDAQ Also Turns Down After Starting Upward

The KOSPI is showing a downward trend for the first time in eight days. Foreign selling, driven by the strong dollar, appears to be exerting downward pressure on the index. Following South Korea, the U.S. also entered earnings season last week, and it is expected that stock differentiation based on earnings will become more pronounced.

KOSPI Starts Up but Turns Down

As of 10:15 a.m. on the 18th, the KOSPI was at 2,562.40, down 13.51 points (0.52%) from the previous day. The KOSDAQ fell 2.86 points (0.31%) to 906.64.

[Image source=Yonhap News]

Foreign and institutional selling is pulling the index down. Foreign selling has continued for two days amid a strong dollar. Foreign investors are net sellers of 13.5 billion KRW in the KOSPI market and 142.8 billion KRW in the KOSDAQ market. In the futures market, nearly 800 billion KRW has been sold. Institutions are also maintaining their selling trend, offloading 446.1 billion KRW in the KOSPI market and 65.3 billion KRW in the KOSDAQ market. Seosangyoung, a researcher at Mirae Asset Securities, said, "The won-dollar exchange rate has risen sharply, continuing the won's weakness, which could negatively affect foreign demand. While foreigners and individuals are concentrated on some stocks, the overall market is undergoing a process of absorbing sell orders, so the Korean stock market will continue to be characterized by individual stock movements."

In the Seoul foreign exchange market today, the won-dollar exchange rate opened at 1,318.5 won, up 7.4 won from the previous day, and is moving in the 1,320 won range in the early session. Han Jiyoung, a researcher at Kiwoom Securities, said, "Considering that the won-dollar exchange rate rose more than 12 won yesterday due to importers' payment demand and foreign investors' dividend remittance demand, which negatively affected foreign demand, it is necessary to pay attention to the exchange rate trend today as well."

As the U.S. stock market entered earnings season last week, stock differentiation based on earnings has emerged. The U.S. stock market closed higher yesterday amid stock differentiation and expectations for earnings season. On the 17th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 0.30%, the S&P 500 increased 0.33%, and the Nasdaq rose 0.28%. Charles Schwab rose 3.94% after reporting earnings that exceeded expectations, easing concerns about banking risks. M&T, a regional bank based in New York, also rose more than 7% after reporting earnings that exceeded expectations with interest income more than doubling. On the other hand, State Street, the world's largest custodian bank, reported quarterly earnings below expectations, causing its stock to fall more than 9%. Seo Jeonghoon, a researcher at Samsung Securities, said, "Yesterday's U.S. stock market was largely driven by expectations for major companies' earnings. Although it is still early in the earnings season, about 90% of companies that have reported so far have posted results exceeding expectations, so the start is not considered bad."

Expectations for Increased Stock Differentiation During Earnings Season

As earnings season intensifies, stock-specific trends are expected to become more pronounced.

One researcher said, "Although the upward momentum of major stock markets such as the U.S. and South Korea has slowed recently, the reason for the steady upward trend is believed to be the expectation that the first-quarter earnings season will perform well. In the U.S., the S&P 500 first-quarter net income forecast is expected to decline 7.3% year-on-year, marking the worst performance since the second quarter of 2020 (-33%) during the COVID-19 pandemic. This earnings weakness has been largely digested by market participants amid inflation pressures and the banking crisis triggered by the Silicon Valley Bank (SVB) incident." He added, "Paradoxically, even if first-quarter earnings slow down, if the results exceed expectations, it could act as a positive factor for the stock market."

There is a forecast that stock price sensitivity to earnings will increase during this earnings season. The researcher explained, "As confirmed by the stock price differentiation within financial stocks such as Charles Schwab, which reported strong earnings, and State Street, which reported weak earnings, the sensitivity of stock price reactions to whether earnings exceed market consensus is expected to be higher than before during this earnings season."

This week, earnings announcements from major U.S. companies are scheduled to continue, which is expected to influence the domestic stock market as well. Jo Junki, a researcher at SK Securities, said, "This week, the domestic stock market is expected to show individual stock and sector trends while paying attention to the U.S. corporate earnings schedule. Major companies such as Netflix (on the 18th), Tesla (on the 19th), and TSMC (on the 20th) are scheduled to announce earnings, and their results and future guidance could significantly affect the sentiment of their respective sectors and, furthermore, determine the direction of related domestic companies' stock prices."

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