[MarketING] Stock Market, Time to Focus on Recovering Fundamentals

KOSPI Rises After 3 Days
KOSDAQ Continues Uptrend for 2 Consecutive Days

After a one-day break, the KOSPI is showing an upward trend for the first time in three days. This is attributed to the significant rise in the U.S. stock market, driven by strong Apple earnings and improved employment data. As corporate earnings hit bottom and the economy is expected to improve, opinions suggest that attention should now be focused on changes in fundamentals.

KOSPI, Up for the First Time in Three Days

As of 10:15 a.m. on the 8th, the KOSPI was up 18.65 points (0.75%) from the previous session, standing at 2,519.59. The KOSDAQ rose 5.66 points (0.67%) to 850.72.

[Image source=Yonhap News]

The U.S. stock market surged significantly, buoyed by Apple's strong earnings and improved employment figures, which appears to have lifted the domestic market as well. On the 5th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 1.65%, the S&P 500 increased 1.85%, and the Nasdaq climbed 2.25% compared to the previous day.

Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "The U.S. stock market showed an upward trend as Apple surged after its earnings announcement and concerns about a recession eased following the release of U.S. nonfarm payroll data. Additionally, major investment banks upgraded their investment ratings on regional banks, which had recently plummeted, citing oversold conditions. This led to a sharp rise in financial stocks, positively influencing investor sentiment." He added, "Large-cap stocks such as Apple, Tesla, and Nvidia rose sharply, while the easing of regional bank risks acted as a positive factor for the Korean stock market. Furthermore, the weakening of the dollar and yen, along with declines in gold and bond prices, increased risk asset preference, which was also favorable."

Apple announced on the 4th that it recorded $94.84 billion (125.8052 trillion KRW) in revenue and $24.16 billion (32.0482 trillion KRW) in net profit for the first quarter of this year (Apple’s fiscal second quarter). These results exceeded market expectations. Although revenue declined for the second consecutive quarter, iPhone sales increased by 2% year-on-year, and sales in China surpassed expectations, pushing the stock price up by more than 4%.

In the U.S. April employment report, nonfarm payrolls increased by 253,000, up from 165,000 reported last month. The unemployment rate slightly decreased from 3.5% to 3.4%. Researcher Seo analyzed, "While the labor market is slowing down, there is sufficient evidence that it is doing so moderately, which has boosted confidence in the economy. As a result, government bond yields surged, the dollar and yen weakened, and stock prices showed strength."

Time to Focus on Fundamental Direction

With expectations for an improvement in the Korean economy and corporate profits having passed their bottom, opinions suggest that attention should be paid to changes in the direction of fundamentals.

Kyeongmin Lee, a researcher at Daishin Securities, said, "The employment data and Apple’s earnings results have overturned the situation shaken by the retreat of interest rate cut expectations, reaffirming once again that fundamentals determine the direction of the stock market. We need to pay more attention to changes in fundamentals."

Starting from April this year, the OECD Leading Economic Index for Korea reversed to an upward trend, marking a change after 23 months. Along with this, the 12-month forward earnings per share (EPS) for the KOSPI also turned upward. The 12-month forward EPS, which had fallen to 187 points at the end of March, rose to 203 points as of the 4th. Lee explained, "This is the highest level since January this year, representing an 8.6% rebound from the bottom. Korean fundamentals are concluding a two-year down cycle and a reversal is becoming visible after two years."

As the first-quarter earnings season nears its end, expectations are growing that corporate earnings have bottomed out and will recover. Changmin Jo, a researcher at Yuanta Securities, said, "Although the first-quarter earnings season started with Samsung Electronics’ earnings shock announcement, many companies that reported afterward exceeded consensus estimates, so the overall atmosphere of the first-quarter earnings season is not bad." He analyzed, "The achievement rate of earnings estimates for companies that have reported so far is 120.8%, and the earnings surprise rate is 60.2%."

With first-quarter earnings better than expected, the downturn in the profit cycle has eased more than anticipated. Researcher Jo said, "Based on consensus, the operating profit growth rate for the first quarter is -44.4%, so the first quarter could be the bottom, and a rebound in the cycle is expected. The stronger the earnings surprise, the better the stock price performance, indicating that the explanatory power of fundamentals is increasing."

Lee added, "Despite increased volatility in the U.S. financial market, attention should be paid to the fact that Korea’s economy and corporate profit direction are improving for the first time in two years. From now on, it is necessary to actively use volatility as an opportunity to increase weighting."

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