[MarketING] Rising Trend Unlikely to Be Damaged Despite Tightening Concerns

The KOSPI is showing an upward trend for the first time in four days. Although it started lower due to hawkish remarks by Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), it successfully rebounded as buying interest emerged in response to the recent continuous decline.

As of 10:20 a.m. on the 22nd, the KOSPI was at 2,592.01, up 9.38 points (0.36%) from the previous day. The KOSDAQ rose 3.50 points (0.40%) to 879.20.

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On this day, both the KOSPI and KOSDAQ started lower influenced by the weak U.S. stock market following Chairman Powell's hawkish remarks but turned upward thanks to individual investors' buying power. On the 21st (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 0.3%, the S&P 500 dropped 0.52%, and the Nasdaq declined 1.21% compared to the previous day. Han Ji-young, a researcher at Kiwoom Securities, explained, "The U.S. stock market declined amid continued hawkish remarks by Chairman Powell, concerns over economic slowdown due to FedEx's poor earnings, and ongoing corrections in growth stocks such as AI and electric vehicles."

Chairman Powell appeared before the House Financial Services Committee for the semiannual monetary policy hearing and stated, "The majority of Federal Open Market Committee (FOMC) members believe there will be two rate hikes this year."

The Fed, at the FOMC meeting on the 14th, kept interest rates unchanged but raised the year-end rate forecast (median) on the dot plot from 5.1% to 5.6%, suggesting the possibility of two baby steps (0.25 percentage point hikes) within the year.

If the Fed's two additional rate hikes materialize, there is a possibility of a stock price pullback. One researcher explained, "The main driver of the stock market rally in the first half was the expectation that the Fed would end tightening within the first half and enter a rate cut cycle around year-end or early next year. If the Fed actually implements two additional rate hikes, these expectations will retreat, and a significant stock price pullback could occur, especially in growth stocks and semiconductors."

However, the upward trend in stock prices is not expected to be damaged. The researcher said, "Although the U.S. stock market fell sharply by more than 1%, mainly in the Nasdaq, due to hawkish remarks yesterday, it is appropriate to view this as a manageable level for the stock market, similar to the June FOMC. This is not a phase where the previously rising trend of the stock market collapses or is damaged but should be regarded as a profit-taking pullback amid recent concerns about short-term overheating."

Although the KOSPI recently fell below the 2,600 level after consecutive declines, opinions suggest that the upward momentum remains intact.

Kang Dae-seok, a researcher at Yuanta Securities, said, "Since large-cap stocks led the rally for almost a month since mid-May, profit-taking demand may arise. However, the upward momentum for the domestic stock market remains alive in terms of foreign demand, price, and earnings."

Foreign investors have turned to net selling of about 150 billion KRW in the KOSPI this month, but net selling of large-cap KOSPI stocks is only about 49 billion KRW. Researcher Kang explained, "The net buying trends by sector are confirmed not to have changed significantly compared to May. Net buying momentum is still maintained mainly in sectors such as semiconductors, automobiles, and shipbuilding."

It is expected that second-quarter earnings will strengthen the stock price momentum. Researcher Kang said, "The export industry business outlook index for the third quarter exceeded the baseline of 100 for the first time in six quarters, so expectations for further upward revisions of domestic corporate profits remain valid. As the earnings season approaches and upward revisions of earnings estimates are confirmed again, it will serve as an opportunity to reinforce the previously weakened upward momentum of the KOSPI index."

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