Focus on market rally rather than instability… shrinking influence of interest rates

Park Byung-chang, CEO of MP Partners, predicted a rise in the stock market today. He explained that the interest rate hike issue was already fully anticipated and reflected by the market, dismissing theories of an impending crash as a temporary phenomenon.

"Today, I actually expect a rise."

Although the interest rate hike issue occurred after three years, it has already been reflected in the market. CEO Park Byung-chang predicted that there would be no Fed interest rate-related events until December. Accordingly, he expects Q3 earnings announcements and elections to be the next key market drivers.

"What events are next? There are Q3 earnings announcements. And then the election. The Fed's interest rate talks are over until December."

However, CEO Park Byung-chang emphasized that the market had fully anticipated and prepared for these developments. He analyzed that while short-term volatility might occur, it is difficult to see it as a precursor to a major crash.

"They say that downplaying interest rate hikes is gaslighting. That's how it is. Even though I speak like this, interest rate hikes are a huge negative factor."

The US market will face its futures and options expiration tomorrow. This is more likely to increase supply and demand volatility rather than determine direction. CEO Park Byung-chang diagnosed that the market will enter a period of searching for direction in the short term.

"Tomorrow is the futures and options expiration in the US. The US is also highly likely to experience this. The US market is much bigger than ours."

The market has consistently experienced declines on the day of the Fed's benchmark interest rate decisions. CEO Park Byung-chang analyzed that this trend is a normal, not unusual, market reaction. Intra-day volatility was limited to within 1%, and bond yield movements did not meet market expectations.

"The Fed's benchmark interest rate decisions are made in odd-numbered months and not in June and December, aren't they? All year, there hasn't been a single day when the market didn't fall after the Fed's FOMC meeting and announcement of results."

The Philadelphia Semiconductor Index showed strength, rising by 0.6%, with Intel up 7.5% and other major semiconductor stocks like AMD also rising. 30-year Treasury bonds recorded a temporary dip before stabilizing.

"The 30-year maturity fell and then stabilized. And the 10-year and 2-year did not fall, but rose."

The Fed's interest rate hike was almost unanimously decided, with 18 out of 19 attendees voting in favor. Of these, 18 see a high possibility of one more hike this year. The Fed upgraded its GDP growth forecast, lowered its unemployment rate forecast, and raised its core PCE inflation forecast. These indicators suggest the Fed has a positive view of the economic situation.

Major Wall Street institutions like Wells Fargo and Yardeni Research have lowered their target stock prices. However, this is not due to lower corporate earnings forecasts; rather, earnings forecasts remain upgraded. CEO Park Byung-chang explained that this is due to the judgment that appropriate multiples should be lowered as interest rates rise. Therefore, re-evaluating corporate valuations becomes more important than just index gains.

"They didn't lower corporate earnings forecasts at all. They actually upgraded them. But they lowered the target index. They're saying that because interest rates went up, the multiple needs to be lowered."

The speed and direction of interest rate changes significantly impact short-term market trends. In contrast, the absolute value of interest rates serves as an important indicator for determining market peaks and troughs, according to CEO Park Byung-chang. In other words, the magnitude and direction of changes have a more immediate impact on market reaction than how much interest rates rise or fall.

"Speed and direction are important. The absolute value seems really important when determining when the market will hit its bottom or peak."

CEO Park Byung-chang expects the market to stabilize as uncertainties surrounding interest rate hikes are resolved. He interpreted the situation as a market turnaround, with preemptive buying of stocks that had previously undergone adjustments.

"Looking at the supply and demand yesterday, institutions bought everything. There had been continuous uncertainty about the negative impact of interest rate hikes. Now that this is over, I think stocks that were adjusted at that time are being preemptively bought, leading to a transition."

After the initial optimism of Q1 and the reality check of Q2, Q4 tends to see a shift to reflective investing. With the year-end approaching, competition intensifies to boost portfolio returns, and market funds actively engage in sector rotation, explained CEO Park Byung-chang.

"For portfolio performance, the so-called return game is strongest in Q4. Q4."

The government's report to the National Assembly on the US investment agreement, initially expected on the 18th, has been postponed to the 22nd. Discussions on the Westinghouse stake issue and the commercial viability of the Alaska LNG project appear to be ongoing in this agreement. CEO Park Byung-chang estimates that the delay is due to the need for last-minute negotiations regarding private investment participation and securing commercial viability, requiring coordination on contentious issues.

"The government's report on the US investment agreement to the National Assembly will be on the 22nd. It was originally expected on the 17th and 18th, wasn't it? But now it's expected to be delayed until the 22nd."

As a solution to these problems, advanced packaging for combining CPUs and accelerators was proposed. The surge in memory prices is expected to pressure the profitability of IT device manufacturers, such as smartphones and PCs, affecting the overall IT industry.

"Intel CEO said that he expects a deepening memory shortage next year and a five to seven-fold surge in prices."

However, facing energy security issues recently, it is now pushing to resume nuclear power. Policy movements are active, with a new nuclear power bill passing the lower house in June, reflecting changes in the global energy market.

"Italy decided to phase out nuclear power through a national referendum in 1987. But this time, they decided to pursue resuming nuclear power."

Various unrelated sectors, such as special semiconductors, biotechnology, and substrates, are experiencing simultaneous rises. While this market uncertainty can confuse investors, it also provides new investment opportunities.

"There's no consistency. No, no. There's no connection at all. They're moving without any connection at all."

Typically, interest rate hikes are negative for the biotech sector. However, a rare phenomenon recently occurred where biotech stocks rose on the day of the interest rate hike. CEO Park Byung-chang analyzed this phenomenon as indicating a shift in the market's perspective towards 'reduced influence of interest rate hikes.' He suggests that interest rate hikes may no longer be a major variable holding back the market.

"Interest rates went up, but biotech rose—that's a mismatched combination. So, it seems correct to think that the interest rate hike has passed its impact. It doesn't seem like interest rate hikes are holding back the market."