[Good Morning Market] Rising Oil Prices Stall U.S. Stocks... Korean Market Expected to Rotate Amid Pause

Oil Surges 5% as U.S.-Iran Talks Stall

U.S. Markets Sluggish, Volatility Remains Contained

Korean Stocks Pause, Sector Rotation Expected

As negotiations between the United States and Iran remain at an impasse, oil prices surged and U.S. Treasury yields climbed, resulting in a somewhat subdued performance on the New York stock market. The domestic stock market is also expected to enter a period of consolidation as a ripple effect, with forecasts indicating a rotational trend among industry sectors.

On the 10th (local time), the S&P 500 Index closed at 7,753.11, down 0.06% from the previous day. The tech-heavy Nasdaq Composite Index finished at 26,605.36, a decline of 0.32%. The Dow Jones Industrial Average ended trading at 53,975.98, down 0.11% from the previous session.

This is believed to be due to the renewed surge in oil prices, as the United States and Iran have still failed to produce any concrete outcomes regarding negotiations on reopening the Strait of Hormuz. Esmail Baghaei, spokesperson for Iran's Foreign Ministry, asserted that the reopening of the strait depends on the United States and Israel, and that the United States must compensate for all violations of previous memoranda of understanding (MoUs). U.S. President Donald Trump countered by stating, "Iran must compensate the families of the tens of thousands of innocent protesters killed over the past 50 years, as well as the American victims of conflicts and terrorism."

With no end in sight for the reopening of the strait, international oil prices responded accordingly. On this day, both Brent crude and West Texas Intermediate (WTI) futures settled up sharply by 5% compared to the previous session.

The rise in oil prices once again spurred higher interest rates. The yield on the 10-year U.S. Treasury bond rose by 5.70 basis points (bp; 1 bp = 0.01%) from the previous closing to reach 4.70%.

Despite this geopolitical uncertainty and soaring oil prices, the fluctuations in the stock market were relatively contained. Zachary Hill, Head of Portfolio Management at Horizon Investments, commented, "Everyone is weary of the stalemate regarding the conflict with Iran," adding, "However, each time tensions in the Middle East escalate, their market impact tends to diminish compared to prior instances."

Meanwhile, on this day, Intel announced plans for its first post-listing rights offering, raising $15 billion (about 21.2 trillion won) to invest in artificial intelligence (AI) semiconductors, which pushed its shares down by 4.06%. Nvidia declined 2.86% on reports that the company is in talks to raise $500 billion (about 710 trillion won) for AI infrastructure investment alongside major private equity (PEF) firms such as BlackRock, Brookfield, Goldman Sachs, and Kohlberg Kravis Roberts (KKR). This rekindled concerns over circular financing. In contrast, SanDisk (up 2.1%), Microsoft (up 1.2%), and Palantir (up 1.9%) all recorded gains. Market concerns about some companies are not spreading to the AI and semiconductor sector as a whole.

The domestic stock market is expected to display rotational movements among industry sectors, as higher oil prices and interest rates resulting from the deadlock in U.S.-Iran negotiations, coupled with a cooling off in the U.S. stock market, have triggered short-term profit-taking among small and mid-cap stocks that have seen consecutive rallies recently.

The MSCI Korea Equity Exchange Traded Fund (ETF), which closely tracks the movement of the domestic stock market, declined by 1.79%. The Philadelphia Semiconductor Index dropped by 2.94%.

Although the KOSDAQ market demonstrated relative strength, some analysts believe that there remains room for growth in the KOSPI as well. Ji Young Han, a researcher at Kiwoom Securities, explained, "The recent relative strength of KOSDAQ was largely a result of oversold rebounds and adjusting to parity with the KOSPI. Although the KOSPI (-4.5%) and large-cap KOSPI stocks (-6.5%) have been weak this month, mid-cap KOSPI stocks (+15.3%), small-cap KOSPI stocks (+14.0%), as well as KOSDAQ (+18.7%), all showed robust rebound momentum."

The analyst further stated, "While KOSDAQ and small-to-mid cap stocks could continue their rebound over the remaining four trading days this week, potential positive catalysts such as U.S. tech stock earnings and shareholder return expectations for domestic semiconductor stocks are also present for KOSPI. On the premise that the recovery momentum for the domestic market remains intact, now is a time to employ a 'barbell strategy' rather than completely switching to KOSDAQ; this includes diversified allocations between KOSPI and KOSDAQ and balancing semiconductor stocks at around 50% with additions from non-semiconductor sectors such as power equipment, multi-layer ceramic capacitors (MLCC), defense, and biotech."

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