[MarketING] Resilient KOSPI Despite Debt Ceiling Uncertainty

KOSPI Rises for 7th Day... Recovers to 2560 Level Early in Trading
KOSDAQ Also Up for 6 Consecutive Days

The KOSPI has continued its seven-day winning streak. It recovered the 2560 level early in the session. Although the debt ceiling negotiations have yet to reach a conclusion, the market seems to believe that an agreement will eventually be reached. While recent global major stock markets have shown an upward trend, raising expectations for entering a bull market, there are also opinions that it is not a bull market, which is likely to increase interest in whether it is truly a bull market.

KOSPI Rises for 7 Consecutive Days... Recovers 2560 Level

As of 10:20 a.m. on the 23rd, the KOSPI was at 2569.37, up 12.29 points (0.48%) from the previous day. The KOSDAQ rose 6.04 points (0.71%) to 858.08.

[Image source=Yonhap News]

The U.S. stock market closed mixed and flat as investors remained cautious, awaiting the results of the debt ceiling negotiations. On the 22nd (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.42% from the previous day, while the S&P 500 rose 0.02%, and the Nasdaq increased by 0.5%.

Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "The U.S. stock market showed limited fluctuations as it reacted sensitively to individual news, such as when House Speaker Kevin McCarthy claimed the negotiations were not optimistic during the day, leading to some selling pressure. While waiting for the debt ceiling negotiation results after the market close, the Nasdaq rose by focusing on changes in individual stocks, but the Dow closed mixed with a decline."

On the previous day, U.S. President Joe Biden and House Speaker McCarthy met for the third time at the White House to discuss raising the debt ceiling but failed to reach an agreement. This third meeting, held with the tentative deadline just ten days away, failed to narrow the differences in positions, just like the meetings on the 9th and 16th.

Jiyoung Han, a researcher at Kiwoom Securities, analyzed, "The debt ceiling issue, which is currently at the center of the news flow, is injecting uncertainty into the stock market by creating a repetitive loop of strengthened negotiation expectations → weakened negotiation expectations → re-strengthened negotiation expectations. However, it is appropriate to respond to this debt ceiling uncertainty while maintaining the existing assumption that the negotiation will be settled before the 'X-date,' the date in early June when the federal government's cash reserves run out."

There is an opinion that more attention should be paid to fiscal spending cuts rather than the debt ceiling negotiations. Researcher Seo said, "Since the debt ceiling negotiations will eventually be resolved, even if the failure to reach an agreement this time increases volatility, the extent will be limited. Rather, attention should be paid to the acceleration of the U.S. economic slowdown caused by fiscal spending cuts through the debt ceiling negotiations."

Real Bull Market VS Fake Bull Market

Recently, as domestic stock markets and major global indices have continued to rise, the possibility of entering the early stages of a bull market has been raised.

According to Kiwoom Securities, the KOSPI has risen 19.8% from its intraday low last year, the KOSDAQ 31.0%, the S&P 500 20.1%, the Nasdaq 26.1%, and Germany's DAX 37.8%, with major global indices showing an increase of about 20% or more from last year's intraday lows. Researcher Han said, "From a technical perspective, a rise of more than 20% from the low is defined as a bull market, so the more than 20% rebound from the lows in these major indices could indicate the beginning of a new bull market. However, looking at past cases, there have been several instances of fake bull market signals where the market rebounded more than 20% from the low during a bear market, so some argue that stock allocations should be significantly reduced from this point."

As the S&P 500 recently hit its highest level this year, Bank of America raised its year-end forecast for the S&P 500 from 4000 to 4300. However, Morgan Stanley last week suggested that the rally might be a false rise, especially noting that the S&P 500's intraday breakthrough of the upper bound of the 3800?4200 box range at 4200 is not a sign of a bull market and could be a panic buy that may lag the rally. Mike Wilson, Chief Investment Officer (CIO) at Morgan Stanley, stated, "Although the U.S. stock market has broken out of the box range it has been in for the past six months, it is not sufficient to consider this a new bull market signal. Investors should not be deceived by a fake rally."

This bull market controversy is analyzed to potentially cause future market volatility. Researcher Han said, "Most market participants agree that the downside rigidity of the stock market has been secured, but the question of how much the upside will open, that is, the conflicting outlooks between a real bull market and a fake bull market, will become more frequent over time. In that process, it is necessary to keep open the possibility that market volatility may increase as certain periods or specific factors are absorbed."

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