[MarketING] The Stock Market Phase to Continue Amid Defensive Sentiment

KOSPI Weakens in One Day
KOSDAQ Continues Decline for Second Day

The KOSPI turned bearish after a day of gains. The KOSDAQ continues its downward trend. It is interpreted that stock prices are showing limited movement as caution expands due to the U.S. Consumer Price Index (CPI) announcement and debt ceiling negotiations. It is expected that a stock-specific market will continue depending on individual issues such as earnings.

KOSPI Turns Down After One Day

As of 10:15 a.m. on the 9th, the KOSPI was at 2,503.42, down 9.79 points (0.39%) from the previous day. The KOSDAQ recorded 831.18, down 11.10 points (1.32%).

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The U.S. stock market closed mixed within a narrow range due to recession concerns, which appears to have negatively affected the domestic market. On the 8th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.17% from the previous day, while the S&P 500 rose 0.05% and the Nasdaq rose 0.18%. Sangyoung Seo, a researcher at Mirae Asset Securities, analyzed, "The U.S. market saw some selling following last Friday's gains, and the consumer expectations survey released by the New York Federal Reserve highlighted a slowdown in household spending outlook. Although the Federal Reserve's loan practices report indicated broadly tightened lending conditions, which expanded the downside, the market ultimately closed mixed."

The consumer expectations survey released by the New York Fed showed that the household spending outlook fell by 0.5 percentage points to 5.2%, the lowest since September 2021, indicating a slowdown in consumption. Additionally, the probability of a higher unemployment rate one year later rose by 1.1 percentage points to 41.8%, highlighting the increased likelihood of an economic slowdown.

The Fed announced in its quarterly 'Survey of Bank Loan Officers' report that lending standards tightened for both small and large businesses in the first quarter, and demand weakened. Researcher Seo stated, "The Fed's report on tightened lending requirements by U.S. banks confirms that the pace of economic slowdown in the U.S. may accelerate, which is a burden for the Korean stock market. Especially in the export-dependent Korean economy, the possibility of reduced exports due to the U.S. economic slowdown and instability in Korea-China relations could trigger concerns over earnings deterioration among large export companies."

Heightened Caution Due to CPI and Debt Ceiling Negotiations

Market participants are expected to adopt a wait-and-see stance ahead of the U.S. April CPI announcement scheduled for the 10th. Additionally, the upcoming meeting between President Joe Biden and congressional leaders to negotiate the debt ceiling is also contributing to increased caution.

Although the Federal Open Market Committee (FOMC) in May dismissed the possibility of rate cuts within the year, according to the Chicago Mercantile Exchange (CME) FedWatch tool, the consensus is forming that starting in September, the Fed will cut rates by 25 basis points (1bp = 0.01 percentage points) consecutively, reaching a terminal rate of 4.5% by year-end. Ji-young Han, a researcher at Kiwoom Securities, analyzed, "The gap between the Fed and the market regarding rate cuts within the year remains wide. If the April CPI comes out higher than expected, this gap could widen further, increasing concerns that it might trigger a market correction."

Debt ceiling negotiations could also stimulate anxiety. Researcher Han said, "Since the U.S. debt ceiling has been raised 78 times since the 1960s, it is expected to be raised again this time. However, in the short term, it could act as noise that triggers market uncertainty, so the domestic market will be influenced by related news flow even during trading hours."

Due to factors increasing uncertainty, investor sentiment is not improving, and a stock-specific market driven by individual issues is expected to continue. Researcher Han explained, "Although favorable factors such as strong first-quarter earnings and strengthened expectations for the end of Fed tightening have emerged, cautionary factors still remain in the market, limiting market momentum. Due to U.S.-originated uncertainties such as CPI caution and debt ceiling negotiations, the index is expected to show a stagnant trend, with differentiated sector performance based on individual issues such as earnings."

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