[Good Morning Stock Market] Rekindled US Bank Risk... KOSPI Expected to Start Down 0.7%

by Son Seonhee

Published 26 Apr.2023 08:51(KST)

The US Nasdaq index closed down, showing a nearly 2% decline. The stock price of First Republic Bank plummeted, reigniting concerns about regional bank insolvency, and a cautious sentiment over major companies' earnings spread, resulting in an overall sluggish performance. The KOSPI is also expected to start down about 0.7% on the 26th.

On the previous day (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 344.57 points (1.02%) from the previous close to finish at 33,530.83. The Standard & Poor's (S&P) 500 index dropped 65.41 points (1.58%) to 4,071.63, and the Nasdaq index closed at 11,799.16, down 238.05 points (1.98%) from the previous session.

[Image source=Yonhap News]

The main reason for the US stock market's weakness was the plunge in First Republic Bank's stock price. Following the earnings announcement the day before, news that deposits had decreased by more than 40% in the first quarter caused First Republic's stock to plummet by 49.38%. After the collapse of Silicon Valley Bank (SVB), First Republic, which had been under scrutiny, actually experienced a massive bank run. It is reported that net cash outflows exceeded $100 billion. Local reports also indicated that First Republic is considering selling loans and securities worth up to $100 billion. This reignited concerns about insolvency across the banking sector, acting as a negative factor for the stock market.

Additionally, the consumer confidence index weakened, increasing fears of an economic recession. The Conference Board's April consumer confidence index was 101.3, down from the revised March figure of 104.0. This was below the expert forecast of 104.0 compiled by The Wall Street Journal (WSJ) and marked the lowest level since July of last year.

On individual company issues, the investment rating for Dutch semiconductor equipment maker ASML was downgraded, causing declines in Nvidia (-2.96%), AMD (-4.31%), and a 3.37% drop in the Philadelphia Semiconductor Index. However, Microsoft (MS), which reported earnings after the market closed, posted results exceeding market expectations, and Alphabet also showed solid earnings with its cloud division turning profitable for the first time, leading to after-hours gains of about 5% and 4%, respectively.

Due to the US stock market's weakness, the KOSPI is expected to start down about 0.7% today. Seo Sang-young, head of the Media Content Division at Mirae Asset Securities, said, "The US stock market's decline, highlighting recession concerns and regional bank risks derived from First Republic, is a burden on the Korean stock market," adding, "The 3.37% drop in the Philadelphia Semiconductor Index is also a negative factor." However, he noted, "Considering that some of these factors were already reflected the previous day, the impact on the Korean stock market is expected to be limited," and added, "The fact that MS and Alphabet posted solid earnings after the US market close and are showing gains of about 4% is positive."