[Weekly Market Outlook] Investor Sentiment Worsens Amid Stock Manipulation Controversy... Caution Ahead of FOMC

May FOMC Rate Hike Likely, Focus on Powell's Remarks
Apple, Kakao Earnings Announcements Show Clear Stock Differentiation

The domestic stock market this week (2nd to 4th) is expected to be influenced by deteriorating investor sentiment. Despite solid first-quarter earnings, geopolitical risks and consecutive limit-down incidents in some stocks have dampened investor sentiment, and caution ahead of the Federal Open Market Committee (FOMC) meeting is likely to increase. However, selective strength in stocks with strong earnings is expected to continue, leading to clear differentiation among individual stocks. The market will be open only from the 2nd to the 4th this week, as May 1st (Labor Day) and May 5th (Children's Day) are public holidays.

[Image source=Yonhap News]

On the 1st, the securities industry anticipated that investor sentiment would worsen due to caution ahead of the U.S. FOMC meeting scheduled for the early morning of the 4th Korea time. According to the Chicago Mercantile Exchange (CME) FedWatch as of April 28, the probability of a 0.25 percentage point rate hike is 87%, while the probability of a rate hold is 13%. Global financial markets are treating a 0.25 percentage point hike as a foregone conclusion.

Kim Young-hwan, a researcher at NH Investment & Securities, said, "The 25 basis points (0.25%, 1bp=0.01%) hike in May is already accepted as a given in the financial market," adding, "The short-term direction of the stock market may change depending on how Fed Chair Jerome Powell addresses the future inflation trajectory, risks in the U.S. banking sector, and uncertainties surrounding the U.S. debt ceiling negotiations during the press conference."

Heo Jin-wook, a researcher at Samsung Securities, said, "With renewed uncertainty related to First Republic Bank, some are suggesting a 'hold in May, hike in June' scenario," adding, "Unless financial stability is threatened to the level seen during the Silicon Valley Bank incident within the next week, the possibility of a hold in May is considered low."

The domestic stock market is also likely to experience risk-averse investor behavior this week due to uncertain market trends. The turmoil caused by the recent stock price manipulation scandal involving Contracts for Difference (CFD) is expected to continue. However, there is also a forecast that attention may shift once earnings events for major domestic and international big tech companies, including Apple and the Kakao Group, begin.

Han Ji-young, a researcher at Kiwoom Securities, said, "Since earnings for major domestic stocks like Samsung Electronics and Hyundai Motor have already been announced, the impact of this week's corporate earnings on the overall domestic stock market will not be significant. However, if Apple's earnings scheduled for the 4th come out strong, it will play a role in driving not only the U.S. market but also the domestic stock indices," adding, "While individual sector indices may show differences in line with domestic and international economic indicators, disruptions in supply and demand caused by some stocks will gradually subside over time." She further predicted, "With major domestic and international events such as the FOMC meeting, Apple earnings, and domestic credit balance issues coinciding, a market environment with differentiated volatility between individual sectors and stock groups will unfold."

There is also advice to focus on large-cap KOSPI stocks with strong earnings. Lee Hyuk-jin, a researcher at Samsung Securities, emphasized, "Caution is needed regarding recently overheated stocks," adding, "The KOSPI is likely to see a rebound centered on large-cap stocks around China's Labor Day (May 1) and the U.S. FOMC (May 3), while the KOSDAQ will see supply and demand spread to growth stocks excluding batteries as volatility in the secondary battery sector expands."

Meanwhile, last week, the KOSPI and KOSDAQ indices fell by 1.68% and 2.99%, respectively. The secondary battery sector, which had shown strong gains since the beginning of the year, gave back its gains following Tesla's disappointing first-quarter earnings announcement. The limit-down incident triggered by SG Securities also had a significant impact, freezing investor sentiment.

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