10-Year Treasury Yield at 5%, Rate Hike as a Breakthrough

The Philadelphia Semiconductor Index fell by 5.8% due to the ongoing war in the Middle East and issues with the pace of AI technology development, but major indices like Nasdaq showed a robust trend relative to the severity of the negative factors.

Park Byeong-chang, CEO, analyzed that the current market movement is different from expectations, stating, "Considering only the level of negative factors, it should have plummeted much more than this."

Park Byeong-chang, CEO, added, "They are trying to do buybacks, but the market is like, 'Oh, that's enough? You must be kidding.' That's the sentiment."

The market demands that the U.S. Federal Reserve clearly demonstrate its commitment to addressing inflation. It believes that if the Fed raises the benchmark interest rate, long-term Treasury yields can actually stabilize.

This expectation stems from the belief that the Fed's independence and commitment to curbing inflation will instill confidence in the market and alleviate long-term inflation concerns. Park Byeong-chang, CEO, stated, "So, if they raise interest rates this time, there's a strong possibility that Treasury yields will fall."

The market wants to resolve uncertainty through an interest rate hike and confirm the Fed's strong commitment to price stability.

The Fed Chair is in a dilemma between raising and freezing interest rates. If rates are frozen, concerns about the Fed's independence could arise, potentially leading to a sharp rise in Treasury yields and negatively impacting the market.

This illustrates a situation where the Fed must make a cautious decision between short-term market turmoil and the long-term negative impact of liquidity withdrawal. Park Byeong-chang, CEO, warned, "If Powell were to say he would freeze rates, on the contrary, if it fragments, then Treasury yields would rise further."

If an interest rate hike is implemented, a short-term market rebound is possible. However, this rebound may be temporary, and a conservative view suggests selling stocks during this period.

Continuous rate hikes could pose greater risks after the fourth quarter, requiring a cautious approach. Park Byeong-chang, CEO, emphasized, "When the market is good, I say let's sell quickly. This quarter, in the fourth quarter, it will become riskier. That's my logic."

This judgment is based on the expectation of robust memory demand despite noise about the pace of AI technology development.

These upgrades signal a positive outlook for technology sector companies.

As corporate automation accelerates, demand for high-performance memory semiconductors such as High Bandwidth Memory (HBM), server DRAM, and SSDs is bound to increase.

AI security systems also drive demand for high-performance semiconductors that utilize AI. Park Byeong-chang, CEO, explained, "Even without full technical development, as AI spreads, more memory will inevitably be needed. Because AI is spreading, it will inevitably need more."

AI has already entered the diffusion phase, and a temporary slowdown in technological development is unlikely to halt the overall trend of increasing memory demand.

Despite the decline in semiconductor stocks, major Big Tech companies such as Apple, Microsoft, Alphabet, and Meta have maintained an upward trend. It has been confirmed that fears of high interest rates and high oil prices are not leading to a broad market sell-off.

This supports the analysis that the US market still maintains a robust structure and that market collapse theories are excessive. Park Byeong-chang, CEO, stated, "Oil prices are going above $100 and 10-year Treasury yields are going above 5%, so everyone should run away? The market is not like that right now in the US."

In responding to the market, it is necessary to avoid predictive buying and adopt a strategy of buying after confirming a clear technical rebound. The KOSPI index should be observed when the 5-day and 20-day moving averages converge.

Park Byeong-chang, CEO, explained, "If the index rises and at least surpasses the 10-day moving average, then you should think, 'Okay, I'll use this money to buy.'"

It is safer to consider executing a purchase after confirming whether the index breaks through 6,800 points.

The current market lacks clear direction due to the sideways movement of Samsung Electronics and SK Hynix. In a situation where the market fluctuates within a narrow range for a month and a half, predicting market direction and taking positions is considered a very risky strategy.

Park Byeong-chang, CEO, warned, "The market can't find direction and is moving back and forth without significant movement. To predict a direction, up or down, and align my position with it, that's too dangerous, isn't it?"

Ahead of the Fed's benchmark interest rate announcement, bargain-hunting sentiment appears to be at play in the market. While interest rate hikes are generally negative for growth stocks, a illogical situation is currently occurring where the healthcare sector is rising.

Park Byeong-chang, CEO, commented, "Let's raise interest rates this time. Constantly... if they raise rates, it actually feels like uncertainty is resolved. ... If they're going to raise it anyway, it's best to just get it over with, rather than not doing it this time and waiting to see what happens next time."

It is observed that the market would most positively receive a scenario where interest rates are hiked and the Fed issues gentle statements.

Just as selling was emphasized in July to match market conditions, it is now important not to try to fit the market into a framework with theoretical metrics.

Park Byeong-chang, CEO, advised, "In times like these... you have to be quick-witted. Quick-witted. ... Being quick-witted is important, but it's also important to be quick in the right direction... I hope that right now, people don't try to force it into a theoretical framework."

The experience of the market plummeting due to frequent changes in tightening guidance during the initial interest rate hikes in 2022 supports this. Park Byeong-chang, CEO, stated, "For the stock market, the Fed's uncertainty is a greater burden than the interest rate hike itself. ... Deutsche Bank analyzes that what the stock market fears is not the interest rate hike itself or high interest rate levels, but rather the volatility caused by frequent changes in the Fed's guidance or the pace of interest rate hikes."

Ultimately, the predictability of the Fed's guidance and its pace, rather than the level of interest rates, acts as the core factor for market stability.

Reports predicting the market based on the distribution of seats in the House and Senate are increasing, and the midterm elections themselves are being defined as 'uncertainty' for the market.

Concerns are being raised that anxiety following the election results could bring additional volatility to the market after the interest rate hike. Park Byeong-chang, CEO, said, "This midterm election is the same; a midterm election means uncertainty. They will talk about it again when the time comes."

According to a Goldman Sachs report, advancements in AI technology are dramatically accelerating robot development, expanding the humanoid robot market alongside autonomous driving. Robots are already moving beyond small-scale prototypes to large-scale prototype production and commercial manufacturing.

Park Byeong-chang, CEO, explained, "Due to the advancement of AI technology, the speed of robot development is accelerating, starting with small-scale prototypes, but now it is already moving into large-scale prototype production and commercial manufacturing."

This demonstrates that AI is not just a technological advancement but is also providing new growth engines across industries.

Simply stopping the decline is not enough; it is necessary to respond only after actual buying interest is confirmed.

Park Byeong-chang, CEO, urged, "If the decline stops here and low-price buying is confirmed, then the market can turn around a little. I hope you pay attention to such things while watching the market."

It is necessary to closely monitor market trends from this Tuesday to Thursday and approach cautiously.