[Good Morning Market] U.S. Rate Hike Concerns Rise... KOSPI Also Faces Profit-Taking Pressure

Focus on Employment Data; Bond Market Reaction Key
Profit-Taking Pressure Rises Even as Korean Stock Market Climbs

The New York Stock Exchange and KOSPI, which have been hitting record highs, are expected to face new variables. Amid noises surrounding the process of finalizing the ceasefire agreement between the United States and Iran, as well as keen attention to economic indicators such as employment, there is likely to be increased pressure for profit-taking.

According to the financial investment industry on June 1, the U.S. S&P 500 Index rose by 5.15% in May to close at 7,580.06. The index has increased for nine consecutive weeks and has risen more than 10% since the beginning of this year. The technology-focused Nasdaq Index surged 8.36% last month to 26,972.62 and has climbed about 16% year-to-date. The Dow Jones Industrial Average also set a new record at 51,032.46. After a correction in March, the market rebounded quickly, driven by expanded investment in artificial intelligence (AI) infrastructure and expectations for improved corporate earnings.

While there may be various frictions in the final process of reaching a ceasefire agreement between the United States and Iran, the market has already largely priced in a deal and ceasefire as the default scenario. Ultimately, the real variables for this week's stock markets are expected to be economic indicators, corporate earnings, and supply-demand events.

In particular, as signs of reaccelerating inflation have recently appeared, the market's attention is shifting toward the Federal Reserve's monetary policy. The U.S. Personal Consumption Expenditures (PCE) price index rose 3.8% year-on-year in April. This was the highest increase in about three years since May 2023. The rise is attributed to higher energy prices resulting from the war between the United States and Iran.

There is especially strong focus on the May U.S. non-farm employment figures. Although the importance of employment has been evaluated as lower than before, it is noteworthy because it will be a key indicator at the June Federal Open Market Committee (FOMC) meeting, which is the first meeting chaired by new Fed Chairman Kevin Warsh.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, said, "If the employment indicators are strong and inflation continues to rise, the outlook for Fed policy could change," adding, "Conversely, if employment is weaker than expected, it could ease concerns about a shift to tightening by the Fed."

In addition, depending on the May employment results, the short-term direction of the U.S. 10-year Treasury yield could also change. This is also linked to the upward momentum of growth stocks other than semiconductors. In the U.S. financial market, there is a forecast that if new employment greatly exceeds 150,000, concerns about economic overheating will grow and Treasury yields will rise, which could actually become a burden.

Besides employment, May's Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) and Korea's May export indicators are also considered important factors. Given that the leading sector in the domestic stock market is semiconductors, whether the momentum of semiconductor export performance can be sustained is seen as a key point to watch.

For KOSPI, the earnings of Broadcom (scheduled for June 4, local time) and the visit to Korea by Jensen Huang, CEO of NVIDIA, are expected to influence supply and demand for the leading stocks.

The Philadelphia Semiconductor Index has soared about 80% since its low at the end of March, and Broadcom's stock price has increased by more than 50% in the same period. The market is expected to assess whether this earnings announcement can justify the sharply increased corporate valuation.

On June 5, right after Broadcom's earnings announcement, the focus will be on whether Jensen Huang's visit to Korea will lead to concrete collaborations in AI and robotics not only with Samsung Group and Hyundai Motor Group, but also with SK Group, Naver, and LG Group. However, since related stocks already surged sharply at the end of last week, there could also be pressure for profit-taking.

Ji-Young Han, a research analyst at Kiwoom Securities, said, "While there are still bullish factors such as additional upward revisions to earnings consensus, the fact that the stock prices have doubled since the start of the year and the dominance of AI-driven stocks such as semiconductors and multilayer ceramic capacitors (MLCCs) have created a sense of polarization among sectors, which could trigger short-term profit-taking. As a result, the daily stock price fluctuations in the Korean stock market could become more pronounced compared to other markets."

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