[MarketING] Stock Market Digesting Profit-Taking Sales

The KOSPI rebounded after a day of decline. Although it turned to an upward trend, it moved within a narrow range, limiting the extent of the rise. For the time being, the stock market is expected to show a capped upward movement as it digests profit-taking sales amid influences such as earnings expectations, the possibility of weakening downward pressure on inflation, and ongoing concerns about economic slowdown.

As of 10:15 a.m. on the 19th, the KOSPI was up 4.99 points (0.19%) from the previous day, standing at 2,576.08. The KOSDAQ rose 1.47 points (0.16%) to 910.49. The KOSPI started lower but turned upward and is moving within a narrow range. The KOSDAQ also started lower and has been fluctuating around a flat range.

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With the U.S. stock market closing mixed and flat the previous day, the domestic market was also affected, limiting the extent of the rise. On the 18th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.03%, the Nasdaq fell 0.04%, while the S&P 500 rose 0.09%. Na Jung-hwan, a researcher at NH Investment & Securities, explained, "Financial stocks such as Bank of America (BoA) reported solid earnings, which was positive for stock prices, but hawkish remarks from Federal Reserve (Fed) officials caused the market to close mixed and flat."

James Bullard, President of the Federal Reserve Bank of St. Louis, stated, "The tightening cycle is nearing its end, but the policy rate should be between 5.50% and 5.75%."

Raphael Bostic, President of the Federal Reserve Bank of Atlanta, argued, "One more rate hike is appropriate at this point, and it is necessary to maintain the benchmark rate at that level for quite some time," suggesting a 25 basis points (1bp=0.01 percentage point) hike followed by a freeze throughout the year.

Han Ji-young, a researcher at Kiwoom Securities, said, "After positively digesting last week's inflation events and entering the full-scale Q1 earnings season, it seems that macroeconomic factors still have a significant influence on the stock market. In particular, the widening gap between the Fed and market participants is also limiting the market's upside."

According to the Chicago Mercantile Exchange (CME) FedWatch, the consensus for the May U.S. Federal Open Market Committee (FOMC) meeting is a 25bp hike followed by the end of tightening, with one or two 25bp rate cuts by the end of the year, showing a divergence from the Fed's outlook.

The market is expected to experience increased volatility amid limited fluctuations. Seo Sang-young, a researcher at Mirae Asset Securities, explained, "For now, the market is solid thanks to strong earnings from individual companies, but expectations may weaken over time. Considering the possibility of weakening downward pressure on inflation and ongoing economic slowdown, the overall market is likely to see increased volatility within a limited range rather than a broad rally."

One of the recent bullish factors in the market was the significant slowdown in the March Consumer Price Index (CPI), which eased inflationary pressures. However, with gasoline prices continuously rising recently, the downward pressure on inflation is expected to weaken in April. Currently, gasoline prices stand at $3.64 per gallon, up 4.7% from the previous month.

In this mixed environment of earnings expectations and economic concerns, the process of digesting profit-taking sales is expected to constrain the index's upside.

Researcher Seo said, "The U.S. stock market saw selling pressure as concerns about slowing earnings improvement due to an expanding economic slowdown emerged, which dampened overall investor sentiment. The fact that Nvidia, whose investment rating and target price were significantly raised, surged over 4% at one point but then gave back some gains due to profit-taking also indicates increased desire for profit realization, which is a burden."

Until the next FOMC meeting, the market's upside is expected to remain capped, with a stock-specific market continuing. Researcher Han said, "Regarding the market's upside, it is necessary to consider the FOMC as the event that creates a turning point by determining whether the gap between the market and the Fed narrows. Until the May FOMC, macro factors and profit-taking will limit the market's upside, and a stock-specific market showing price differentiation based on individual earnings results is an appropriate short-term scenario."

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