[MarketING] KOSPI Falls Below 2600 Amid Caution Over Powell's Remarks

KOSPI Declines for Third Consecutive Day
KOSDAQ Starts Upward Then Turns Down

The KOSPI continued its decline for the third consecutive day, breaking below the 2600 level in early trading. This is interpreted as a result of heightened caution ahead of Federal Reserve (Fed) Chair Jerome Powell's congressional testimony. A period of sideways adjustment with fluctuations within a limited range is expected to continue for the time being.

KOSPI Declines for Third Day... KOSDAQ Starts Up but Turns Down

As of 10:15 a.m. on the 21st, the KOSPI was at 2591.86, down 13.05 points (0.50%) from the previous day. The KOSDAQ was down 2.73 points (0.31%) at 883.68.

[Image source=Yonhap News]

This weakness is attributed to a cautious stance ahead of Chair Powell's congressional testimony. The U.S. stock market also closed lower the previous day due to this. On the 20th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.72%, the S&P 500 dropped 0.47%, and the Nasdaq declined 0.16%. Chair Powell is scheduled to appear before Congress on the 21st and 22nd to report on monetary policy.

Han Ji-young, a researcher at Kiwoom Securities, said, "The U.S. stock market declined due to caution ahead of Chair Powell's remarks, concerns over China's economic slowdown, and profit-taking after the recent rally. Recently, major markets including Korea and the U.S. have entered a consolidation phase as additional upward momentum is limited. This is not only due to growing concerns about overheating stock prices but also because the gap between the market's and the Fed's views is not narrowing, which seems to be capping the stock market's upside."

As Chair Powell is expected to make hawkish remarks, this is likely to weigh on the market. Seo Sang-young, a researcher at Mirae Asset Securities, said, "It is a burden on the stock market that Chair Powell is expected to reaffirm the 50 basis point (1bp=0.01 percentage point) rate hike path through the House Financial Services Committee hearing, similar to the last FOMC. Especially, his hawkish comments that the June rate pause does not mean the end of the rate hike cycle are anticipated." He added, "The U.S. financial market fell the previous day, the dollar and yen strengthened, and government bond prices rose, indicating increased safe-haven demand, which is also a burden. Considering this, the domestic stock market is expected to start lower and then go through a process of digesting selling pressure ahead of Chair Powell's remarks."

Limited Period of Adjustment Expected

Since the gap between the Fed and the market regarding the interest rate path remains, volatility-driven adjustments are expected to continue for the time being.

Researcher Han said, "Until the July FOMC or the Jackson Hole meeting at the end of August, the visible gap between the Fed and the market may not narrow, and during this process, the stock market should be prepared to experience a cycle of adjustments exposed to frequent price volatility. However, considering the possibility of a soft landing recession, recovery in corporate earnings momentum, and the learning effect on existing negative factors, the form of adjustment caused by this volatility is unlikely to be an extreme price correction exceeding 10%." He added, "The base scenario is a period of adjustment with fluctuations within a limited range, and within this, it is necessary to consider and respond to differentiated market trends by specific ideas and sectors such as artificial intelligence (AI), semiconductors, charging, and entertainment."

There is an opinion that entering the 2500 level on the KOSPI would be an opportunity to increase weighting. Lee Kyung-min, a researcher at Daishin Securities, said, "There is no need to rush to increase weighting at the 2600 level of the KOSPI, but from the point of entering the 2500 level, a split buying strategy utilizing volatility is effective. The relative strength of the KOSPI, which is receiving fundamental momentum amid changes in the global narrative, seems possible once again."

Kim Dae-jun, a researcher at Korea Investment & Securities, also said, "Considering that earnings forecasts are being revised upward and sector rotation may continue in the second half, I think there is no need to sell stocks now. This year, the possibility of a summer rally should be kept in mind."

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