[Good Morning Stock Market] All Three Major US Indexes Fall... KOSPI Faces Increased Pressure from External Factors

by Kwon Jaehee

Published 02 May.2023 08:56(KST)

On the 1st (local time), all three major U.S. stock indices closed lower. The New York Stock Exchange opened mixed amid lingering anxiety despite JP Morgan’s announcement that it would acquire most of the assets of the bankrupt bank First Republic, and CEO Jamie Dimon’s remarks that regional bank risks have ended. As the ISM manufacturing index improved and inflation indices rose, causing a sharp increase in Treasury yields, there was a process of digesting sell-offs centered on individual stocks, leading to a shift to a decline. After fluctuating around the flat line, all three major indices eventually closed lower. The Dow Jones 30 fell by 0.14%, Nasdaq by 0.11%, and the Standard & Poor’s (S&P) 500 by 0.04%.

By individual stocks, JP Morgan (2.14%) closed higher on expectations of scale expansion through the acquisition of First Republic. However, regional banks such as PacWest Bancorp (-10.64%) continued their downward trend. Amazon (-3.22%) kept falling after its earnings announcement mentioned that Amazon Web Services (AWS) growth in April declined by 5 percentage points more compared to the first quarter. Tesla (-1.51%) dropped on news that orders for some models were not being processed on websites in some Asian countries including Australia. On Semiconductor (8.85%) surged sharply due to better-than-expected earnings and guidance.

Although the U.S. stock market showed strength last Friday due to improved indicators boosting economic confidence and month-end supply-demand factors, the sell-off centered on individual companies overnight poses a burden on our stock market as well. The contraction of China’s manufacturing index from 51.9 to 49.2 in April and a 14.2% year-on-year decrease in Korean exports also add to the pressure.

[Image source=Reuters Yonhap News]

Sangyoung Seo, Head of Media Content Division at Mirae Asset Securities: “KOSPI to start down about 0.3% followed by a stock-specific market”

Today, our stock market is expected to start down about 0.3% and then move into a stock-specific market as investors await the Federal Open Market Committee (FOMC) and earnings reports from companies such as Apple.

While our market was closed yesterday, the Japanese and Australian markets rose last Friday, buoyed by the strength of the U.S. stock market. In particular, the Japanese market showed strong gains supported by the yen’s weakness following the Bank of Japan’s (BOJ) announcement to continue its easing policy.

Meanwhile, although the U.S. stock market showed strength last Friday due to improved economic indicators and month-end supply-demand factors, the sell-off centered on individual companies on the 1st (local time) poses a burden on the Korean stock market. Especially, despite the easing of related concerns following JP Morgan’s acquisition of First Republic, the continued decline in regional bank stocks is also a concern.

Furthermore, China’s manufacturing index contracted from 51.9 to 49.2 in April, and Korean exports fell by 14.2% year-on-year, a slowdown compared to the previously announced 13.6% decline last month, increasing worries about poor corporate earnings and adding to the burden.

Considering these factors, our stock market is expected to start slightly lower and then move into a stock-specific market focusing on the FOMC, Apple, and earnings announcements from Korean companies such as the Kakao Group.

Kyoungmin Lee, Researcher at Daishin Securities: “Increased uncertainty in external variables... phased buying using volatility”

As the first-quarter earnings season is in full swing, stock prices and indices are fluctuating depending on corporate earnings. The KOSPI is currently experiencing a reaction phase after showing relative strength compared to global markets in April. While the earnings season passing a turning point may provide some relief domestically, external variables remain challenging. Especially this week, with only three trading days, there is a high possibility of profit-taking or a contraction in leveraged investments due to uncertainty factors. For now, a phased buying strategy utilizing volatility is considered effective rather than aggressive investing.

This week, the U.S. ISM manufacturing index, the May FOMC, and April U.S. employment data are scheduled for release. Although U.S. economic indicators show a solid trend, caution regarding monetary policy is expected to intensify. More important than the economic data results will be Federal Reserve Chairman Jerome Powell’s remarks after the May FOMC and the market’s reaction to them.

With a 25 basis point rate hike at the May 3rd (early morning of May 4th Korean time) FOMC already priced in, it is necessary to reconsider the gap between market expectations and the Fed’s stance. It is also worth considering whether a more dovish shift by the Fed than expected could become a surprise momentum.

Domestic first-quarter earnings have so far been better than expected, and the 12-month forward earnings per share (EPS) is also trending upward. The market direction is expected to gradually move upward, but attention should be paid to the fact that the global financial market, especially the stock market, is increasingly influenced by macro variables and monetary policy consensus. If the global financial markets and stock markets fluctuate due to domestic and international macro variables and monetary policy issues, it is recommended to respond with a strategy of holding sectors showing visible positive changes.