[Weekly Market Outlook] Easing Tightening Concerns and Q2 Earnings Season Kickoff 'Differentiated Market'

Stock Market 'Rebound Trend' Amid Currency Uncertainty Burden
Differentiation by Stock Based on Corporate Earnings
Market Correction Used as an Opportunity to Increase Weighting

This week (July 17-21), the domestic stock market is expected to be influenced by easing concerns over tightening due to the slowdown in U.S. inflation indicators and anticipation of the start of the second-quarter earnings season. Overall, a positive atmosphere is anticipated, with differentiated market trends expected depending on corporate earnings.

On the 16th, the securities industry forecasted that the U.S. Producer Price Index (PPI), following the Consumer Price Index (CPI), came in below expectations, easing tightening concerns. Additionally, the Financial Monetary Committee's decision to keep the base interest rate unchanged for the fourth consecutive time is expected to support the stock market rebound.

[Image source=Yonhap News]

The U.S. headline CPI for June rose 3% year-over-year, below the expected 3.1%, and the core inflation index increased by 4.8%, also below the anticipated 5.0%. The June PPI rose 0.1% year-over-year, falling short of the expected 0.4%. Consequently, the Chicago Mercantile Exchange (CME) FedWatch tool predicted that the Federal Reserve (Fed) would raise the base interest rate by 25 basis points (1bp = 0.01 percentage points) once in July, marking the end of the rate hike cycle.

Accordingly, the market is forming expectations of easing tightening. As the influence of interest rates on the market diminishes, earnings are expected to have a greater impact. Differentiated market trends by stock are anticipated depending on corporate earnings announcements. NH Investment & Securities projected the KOSPI weekly expected band for this week to be between 2540 and 2660 points, forecasting that the risk mitigation phase will begin as companies announce their second-quarter earnings. Kim Young-hwan, a researcher at NH Investment & Securities, analyzed, "With the June inflation indicators showing stability and corporate earnings being reported positively, investors are likely to interpret this as a Goldilocks environment."

Yuanta Securities also emphasized that it is now time to focus on the second-quarter earnings season. Cho Chang-min, a researcher at Yuanta Securities, stated, "The second-quarter operating profit forecasts, which had been sluggish in recent weeks, rebounded after the earnings season began," adding, "The upward revision trend of forecasts confirmed during the earnings season is a positive signal for the stock market itself." He continued, "The recovery in trading volume will also positively affect the stock market," and predicted, "As interest in the stock market increases, the upward trend of the market depending on earnings will become more pronounced."

Looking at the major earnings announcement schedule, big tech companies in the U.S. and financial stocks domestically are the focus. On the 18th, Bank of America (BOA), Morgan Stanley, and Lockheed Martin will announce their second-quarter results, while on the 19th, Tesla, Netflix, and Goldman Sachs will disclose their earnings. Domestically, KB Financial Group, Woori Financial Group, and Hana Financial Group will report earnings on the 20th.

Choi Yoo-jun, a researcher at Shinhan Investment Corp., advised, "Although the semiconductor sector will maintain leadership in the stock market for the time being, it seems necessary to present evidence of industry improvement during the earnings season." He added, "Attention should be paid to industrial goods sectors with strong exports to the U.S., such as construction machinery, electrical equipment, and auto parts, as well as the utility sector, which is expected to reflect reduced deficits and a turnaround next year."

Meanwhile, economic indicators from China and the U.S. should also be monitored. On the 17th, China will release its June real economy indicators and second-quarter gross domestic product (GDP), and on the 18th, the U.S. will publish June retail sales results.

Moon Nam-jung, a researcher at Daishin Securities, noted, "China, where concerns over the economy are expanding due to weak real economy indicators, and the U.S., where improved retail sales will reduce recession fears, will release their data." He added, "Although volatility in the stock market will increase early in the week centered on China, the U.S.-led market will soon act as a fire extinguisher, reminding investors that the increased volatility was an opportunity to increase exposure."

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