[Good Morning Market] U.S. Stocks Rise Despite Inflation Concerns; Will KOSPI Rally Again?

Risk Appetite Persists Despite Inflationary Pressures
Rotational Rally Expected for KOSPI; Focus on Sectors with Upward Earnings Revisions

The New York stock market closed higher as semiconductor stocks rallied again despite inflationary pressures. Attention is turning to whether the domestic stock market will challenge the 8,000-point level for the KOSPI.

On May 13 (local time), the S&P 500 index closed at 7,444.25, up 0.58% from the previous day. The tech-heavy Nasdaq Composite Index rose 1.20% to 26,402.34. Both indices reached new all-time highs. In contrast, the Dow Jones Industrial Average ended at 49,693.20, down 0.14% from the previous day, showing slight weakness.

Despite the unexpected Producer Price Index (PPI) announcement and hawkish remarks from Federal Reserve (Fed) officials expressing caution on inflation, technology stocks participating in the U.S.-China summit such as Nvidia (+2.3%), Micron Technology (+4.8%), and Tesla (+2.7%) surged, lifting the market. Alphabet also jumped 3.9%, resulting in six out of the seven major technology stocks classified as the Magnificent 7 (M7) closing higher overnight.

The market displayed strength that overcame concerns about inflationary pressures evident in economic indicators. On this day, the U.S. Department of Labor announced that the U.S. Producer Price Index (PPI) for April rose 1.4% from the previous month and 6.0% from a year earlier. The annual growth rate was the highest since December 2022. This was a greater shock than the April Consumer Price Index (CPI) announced the previous day, which slightly exceeded expectations. The fact that inflationary pressure increased not only in the energy sector but also in intermediate goods, wholesale and retail margins, and gas station sales suggests that the impact of tariffs is accumulating.

Accordingly, expectations for a Fed rate cut have virtually vanished. On the contrary, Susan Collins, President of the Federal Reserve Bank of Boston, stated, "If inflationary pressure does not subside, we cannot rule out the possibility of a rate hike."

Nevertheless, in the stock market, some interpret recent developments as a bet that war- and tariff-related inflation will be temporary, considering the possibility of negotiations between the United States and Iran and rulings nullifying certain tariffs. With the shock of high inflation from the April CPI already priced in, the emergence of the U.S.-China summit as a new factor is also interpreted as supporting risk appetite.

Han Ji-young, a researcher at Kiwoom Securities, stated, "However, it is important to note that concerns about inflation and interest rates have not been completely resolved," adding, "If the U.S. 10-year Treasury yield breaks above the short-term resistance level of 4.5%, it could provide an excuse for profit-taking in the stock market." The analysis suggests that while the U.S.-China summit and ongoing concentration in AI and semiconductor stocks are important, the trajectory of U.S. interest rates also warrants close attention.

The domestic stock market is also expected to open higher, buoyed by the strength of the New York markets. The MSCI Korea ETF, which closely tracks the domestic market, surged 5.68%. The MSCI Emerging Markets ETF also rose 2.11%. The Philadelphia Semiconductor Index closed up 2.57% as well.

A researcher commented, "Although there may be some profit-taking pressure on semiconductor and automobile stocks that soared the previous day, risk appetite remains solid across the market, so a rotational rally with funds spreading to other sectors is expected." The researcher added, "From a short-term strategy perspective, it is also important to pay attention to sectors with upward earnings revisions, even if their returns have lagged behind the KOSPI since this month."

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