[MarketING] Stock Market Fails to Smile Despite US Interest Rate Hold After 15 Months

KOSPI Starts Higher Then Turns Lower
Weighed Down by Possibility of Additional Interest Rate Hike

The KOSPI started higher but then turned to a downward trend. The market initially eased after the U.S. Federal Open Market Committee (FOMC) held rates steady in June, but the possibility of further rate hikes appears to have limited gains. Volatility is expected to increase for the time being as the market digests the FOMC results along with upcoming monetary policy meetings in Europe and Japan.

KOSPI Turns Down After Starting Higher

As of 10:15 a.m. on the 15th, the KOSPI was at 2,618.47, up 0.61 points (0.02%) from the previous day. The KOSDAQ rose 7.47 points (0.86%) to 879.30. Both indices started higher, but the KOSPI turned downward, and the KOSDAQ, which had recovered above the 880 level, saw its gains shrink and fell back below 880.

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Although the U.S. June FOMC held rates steady as expected, the possibility of additional rate hikes appears to be limiting stock market gains.

The U.S. Federal Reserve (Fed) kept the federal funds rate unchanged at 5.00?5.25% during the June FOMC meeting. This marked the Fed’s first pause in rate hikes in 15 months. The Fed had raised the benchmark rate 10 consecutive times from March last year through last month, citing inflation concerns.

While rates were held steady as expected, the Fed raised its year-end rate forecast to 5.6%, leaving room for further hikes. This is significantly higher than the 5.1% year-end forecast in the March dot plot, signaling the possibility of two more baby steps (0.25 percentage point increases) within the year.

Following this, the U.S. stock market initially widened losses, but Fed Chair Jerome Powell’s less hawkish remarks helped reduce the decline or even turn some indices higher, resulting in a mixed close. On the 15th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.68%, while the S&P 500 rose 0.08% and the Nasdaq increased 0.39%. Sangyoung Seo, a researcher at Mirae Asset Securities, explained, "The U.S. stock market saw increased selling pressure after the Fed indicated through the FOMC that rates would remain steady but suggested an additional 50 basis points (1bp = 0.01 percentage point) of hikes by year-end. However, after Chair Powell mentioned that further hikes would be necessary but at a slower pace and that the peak rate was nearly reached, the losses narrowed or the market turned higher to close."

Analysts view the FOMC outcome as neutral for the stock market. Jiyoung Han, a researcher at Kiwoom Securities, said, "Although the dot plot was hawkish, the market seemed somewhat relieved by Chair Powell’s less hawkish signals during the press conference. This FOMC is neutral for the stock market, and while short-term market paths (1?3 months) will face Fed policy uncertainties, the medium-term (over 3 months) upward trend is unlikely to be damaged."

Sectoral Differentiation Expected After Digesting FOMC

With the FOMC behind us and upcoming monetary policy meetings in Europe and Japan scheduled, volatility is expected to increase for the time being.

One researcher noted, "Since market participants need time to digest the June FOMC results, and with major events such as the European Central Bank (ECB) and Bank of Japan (BOJ) monetary policy meetings and the simultaneous expiration of U.S. futures and options scheduled for the remainder of this week, it is necessary to prepare for increased volatility in financial markets including stocks and bonds through early to mid-next week."

The influence of monetary policy is expected to diminish significantly. Jungyoon Kim, a researcher at Daishin Securities, said, "Before the July FOMC meeting, fluctuations may occur as the market checks June employment and May personal consumption expenditure (PCE) inflation data, which could affect expectations for monetary policy changes. However, regardless of whether there is a hike in July, the impact of monetary policy on financial markets will be considerably lower than before, resulting in only short-term fluctuations." He added, "Excessive expectations for monetary policy since the first quarter of this year have mostly normalized, and with the possibility of one more rate hike already priced in, the stock market views monetary policy-related uncertainties as nearing their end."

As sensitivity to monetary policy decreases and the Q2 earnings season approaches, a stock market driven by earnings outlooks is expected to emerge for the time being. The researcher said, "After digesting this week’s events and the June FOMC, there will be virtually no major macro events until early July. Starting next week, the market will enter the Q2 earnings preview phase, so sectoral differentiation led by semiconductor stocks, which have recently emerged as market leaders, is expected to develop based on individual earnings outlooks."

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