[Good Morning Stock Market] "4 Consecutive Declines Amid US Debt Ceiling Negotiation Uncertainty... Focus on Nvidia-Related Stocks"

On the 4th (local time), the U.S. stock market fell for the fourth consecutive day as concerns over a potential default spread amid uncertainties surrounding the debt ceiling negotiations.

Additionally, the release of the high consumer price index in the UK and somewhat hawkish remarks by Fed Governor Waller, highlighting the possibility of a rate hike at the June Federal Open Market Committee (FOMC) meeting, also contributed to the decline.

However, the market focused on the fact that an agreement would eventually be reached, so unlike the nearly 2% drop in European markets, the decline was not amplified.

Accordingly, on the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,799.92, down 0.77% (255.59 points) from the previous trading day. The Standard & Poor’s (S&P) 500 index also fell 0.73% (30.34 points) to 4,115.24, and the tech-heavy Nasdaq index closed down 0.61% (76.08 points) at 12,484.16.

[Image source=Yonhap News]

Among individual stocks, Nvidia fell 0.49% during regular trading but surged 19% in after-hours trading following earnings that exceeded expectations. Analog Devices (-7.83%) declined despite solid earnings due to disappointing guidance. Semiconductor-related stocks such as NXP Semiconductors (-4.88%) also fell together, causing the Philadelphia Semiconductor Index to drop 1.68%. Notably, the Chinese Ministry of Commerce’s opposition to Japan’s export restrictions on chips to China was another factor behind the decline. Netflix (2.49%) rose on expectations of improved earnings after cracking down on account sharing in the U.S., and Palo Alto Networks (7.68%) surged following better-than-expected earnings and guidance.

The continued decline in the U.S. stock market due to ongoing debt ceiling negotiation uncertainties and hawkish Fed remarks poses a burden on the Korean stock market as well. Particularly, the Philadelphia Semiconductor Index’s 1.68% drop and the Russell 2000 Index’s 1.16% decline?indices closely related to the Korean market?showed larger losses compared to other major indices, which is also negative. However, after the U.S. market closed, House Speaker McCarthy claimed that the situation is improving somewhat, providing psychological relief. Additionally, Nvidia’s after-hours surge is expected to have a positive impact.

Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities: “KOSPI Expected to Start Down Around 0.3% but Show Resilient Trend”

On the previous day, the Korean stock market fell nearly 0.5% as profit-taking emerged due to uncertainties over the U.S. debt ceiling negotiations, but the decline narrowed thanks to individual stock issues amid limited fluctuations. Notably, foreigners were net buyers of KRW 93.5 billion, including a net purchase of KRW 94.3 billion in Samsung Electronics, continuing to buy semiconductor stocks, and also net buying in the secondary battery sector, which is positive. Supported by this, unlike the Asian markets that suffered large declines due to the resurgence of COVID-19 in China and U.S. debt ceiling negotiation concerns, the KOSPI closed slightly down, and the KOSDAQ fell 0.43%.

Meanwhile, the continued decline in the U.S. stock market due to ongoing debt ceiling negotiation uncertainties and hawkish Fed remarks also burdens the Korean market. Especially, indices closely related to the Korean market such as the Philadelphia Semiconductor Index (-1.68%), Russell 2000 Index (-1.16%), and Dow Transportation Index (-1.52%) showed larger declines compared to other major indices, which weighs on foreign investor sentiment.

[Image source=Reuters Yonhap News]

Furthermore, unlike in 2011 when the S&P 500 fell 5% in the month before the debt ceiling agreement amid major negotiation issues, in 2023 the decline over the recent month has been slight, indicating that the U.S. stock market has not been significantly affected, which raises concerns about potential increased volatility.

However, after the U.S. market closed, House Speaker McCarthy’s assertion that the situation is improving somewhat provided psychological stability, which is positive. Additionally, Nvidia’s after-hours surge is expected to positively influence investor sentiment. Particularly, although the Philadelphia Semiconductor Index fell during regular trading, the after-hours surge led by Nvidia is also favorable. Considering this, the Korean stock market is expected to start down around 0.3% but show a resilient performance.

Jiyoung Han, Researcher at Kiwoom Securities: “Expected to Start Under Downward Pressure... Focus on Nvidia-Related Stocks”

On the previous day, the domestic stock market closed slightly down due to early news of difficulties in the U.S. debt ceiling negotiations, concerns over China’s ban on Korean cultural content (Hanhanryeong), and profit-taking.

Today, the market is expected to start under downward pressure due to the weak U.S. stock market influenced by the May FOMC minutes and debt ceiling uncertainties. During the day, the Bank of Korea’s Monetary Policy Committee meeting is expected to have an impact. With the interest rate freeze largely priced in, the key point will be whether the committee, like the Fed, leaves the door open for further hikes. Although the direct impact of the Monetary Policy Committee’s decision on the stock market may be limited, it is necessary to keep in mind that it could induce changes in foreign investor flows through the exchange rate channel.

From a sector perspective, attention should be paid to AI and semiconductor stocks. Nvidia (-0.5%), which reported earnings after the U.S. market close, recorded a first-quarter earnings surprise supported by strong AI-related business. Nvidia’s after-hours stock price surge is expected to influence domestic AI-related stocks as well.

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