[Good Morning Stock Market] Persistent US Interest Rate Hike Concerns... KOSPI Expected to Start Slightly Lower

Mixed Trends in US Stock Market Despite Earnings Expectations
Fed Officials Maintain Stance on Interest Rate Hikes

On the 18th (local time), the U.S. stock market remained flat amid corporate earnings announcements. The Dow Jones Industrial Average closed at 33,976.63, down 10.55 points (0.03%) from the previous session. The S&P 500, which focuses on large-cap stocks, ended at 4,154.87, up 3.55 points (0.09%). The tech-heavy Nasdaq closed at 12,153.41, down 4.31 points (0.04%).

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The four major U.S. banks, including Bank of America (BoA), posted earnings surprises despite high-intensity tightening and the small bank crisis triggered by Silicon Valley Bank (SVB). In contrast, investment bank Goldman Sachs took a direct hit with a decline in net income compared to the previous year. Analysts noted that unlike the four major banks, which have a large retail banking segment, Goldman Sachs, which focuses on investment banking, did not benefit from the interest rate hike effects or the reflective gains from deposit outflows at small banks. The sharp decline in IPOs, bond issuance, and bond and stock trading also had an impact.

Additionally, a Federal Reserve (Fed) official stated that the policy of raising the benchmark interest rate should be maintained. James Bullard, President of the Federal Reserve Bank of St. Louis, said in an interview with foreign media that a recession in the second half of the year does not seem likely, supporting further rate hikes. Previously, Bullard had argued that the benchmark rate should be raised to 5.5?5.75% this year.

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, said that "one more move would be sufficient" regarding interest rate hikes. This implies that the Federal Open Market Committee (FOMC) meeting on May 2?3 will raise rates by 0.25 percentage points and then end the tightening cycle. If the Fed freezes rates after a 0.25 percentage point hike, as Bostic suggested, the U.S. benchmark interest rate would reach 5?5.25%, the highest since August 2007.

On the 19th, the domestic stock market is expected to start slightly lower. The U.S. stock market's decline after digesting selling pressure despite initial strength due to earnings season expectations is seen as a burden. Seo Sang-young, head of the Media Content Division at Mirae Asset Securities, explained, "The emergence of selling pressure due to concerns over elevated valuation burdens amid unclear earnings improvements is a factor dampening overall investor sentiment. Additionally, Nvidia, whose investment ratings and target prices were significantly raised, surged more than 4% at one point but then gave back some gains due to profit-taking, which also adds to the burden."

He added, "Gasoline prices, which recently caused inflation to slow down, continue to rise steadily, increasing the likelihood of additional rate hikes at the Fed's May FOMC meeting. Moreover, President Bostic's assertion that after further rate hikes, rates should be held steady for a long time due to high inflation contrasts with market expectations of rate cuts this year, which also weighs on sentiment. Considering this, the domestic stock market is expected to start slightly lower and then undergo a process of digesting selling pressure."

Han Ji-young, a researcher at Kiwoom Securities, said, "Although the first-quarter earnings season has fully begun, macro factors still seem to exert significant influence on the stock market. In particular, the widening gap between the Fed and market participants is limiting the market's upside potential."

She added, "Despite expectations for a China-driven reopening effect, the U.S. stock market's weakness and less market-friendly remarks from Fed officials are creating U.S.-originated burdens. The market is expected to show limited price movement while digesting short-term profit-taking. The increased volatility in stocks such as Netflix, which reported earnings after the market close and saw its shares plunge 8% in after-hours trading due to weak first-quarter subscriber numbers before attempting a sharp rebound, indicates that volatility could spread to domestic growth stocks, including those related to online video services (OTT), so caution is advised."

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