New York Stock Market Falls on Fed Hawk Remarks

The market had anticipated a neutral stance, but the actual remarks were described as hawkish. Regarding this, Park Myung-seok, Department Head, said, "I don't really think it was a 'dove turn'. I just think it was a hawk," emphasizing the Fed's firm stance.

The Fed likely believed that the market was reacting too complacently, despite wanting the market to adjust tightening on its own. Accordingly, the Fed reaffirmed its intention to tighten by reiterating the possibility of an interest rate hike. Park Myung-seok, Department Head, explained the Fed's intention by stating, "From their perspective, it seemed the market was too complacent about interest rate decisions and the bond market than they had expected."

Following the Fed's remarks, the prospect of a September rate freeze plummeted from 70%. According to CME FedWatch, market sentiment shifted with the focus moving towards the possibility of a September rate hike. Park Myung-seok, Department Head, emphasized this change, stating, "The number of people who thought there might be a rate hike in September definitely increased significantly after hearing that."

The United States signed the largest oil trade agreement in world history with Venezuela. Through this agreement, the US secured a majority stake in over 65 billion barrels of Venezuela's oil reserves. Park Myung-seok, Department Head, stated, "The US signed the largest oil trade agreement in world history with Venezuela, securing a majority stake in over 65 billion barrels of Venezuela's oil reserves." This signifies the US's acquisition of 55% of Venezuela's crude oil production and purchasing rights, and is expected to be a crucial variable in stabilizing oil prices and diversifying energy sources.

He emphasized a lack of confidence that underlying inflation is moving towards 2% fast enough, and that if there's no confidence, the Fed has work to do. Kim Jang-yeol, Center Head, quoted his remarks, "The interest rate freeze in July was correct, and we will wait for new information and act with increases, decreases, or freezes according to new information. If underlying inflation is not moving fast enough towards 2%, and there is no confidence in that, then the Fed has work to do. If it doesn't keep going down, they might raise interest rates," hinting at the possibility of interest rate hikes.

The strength of the labor market is key, with market consensus anticipating an increase of 50,000-60,000 people. Kim Jang-yeol, Center Head, explained, "The labor data coming out on September 4th this week has become very important. The data coming out on September 4th will be crucial as to how strong or weak the labor market is, so if it comes out low following July, thoughts of an interest rate hike will surely recede a bit, but if it comes out above 50,000 or 60,000, then the interest rate hike will definitely be established, and the probability could increase to 60-70%." He emphasized that the probability of a rate hike could vary significantly depending on the employment figures.

These companies fund approximately 20-30% of their CAPEX investments with corporate bonds. Kim Jang-yeol, Center Head, analyzed, "Although the issuance rates for long-term bonds have risen to 5.6-6.5%, which might seem burdensome, as I mentioned earlier, if they operate within their cash flow, it's not a problem. There are weak links like Oracle. Amazon and Alphabet actually fund about 20-30% of their annual CAPEX investments with corporate bonds," mentioning the differentiated situation of big tech compared to weak links like Oracle.

While mentioning the need for interest rate hikes, he simultaneously claimed it was not forward guidance, further confusing the market. Kwon Soon-woo, Team Leader, stated, "Kevin Warsh's concept is that he absolutely does not provide forward guidance. He feels that interest rates should be raised a bit, but he claims this is not forward guidance. His words are contradictory. He spoke strongly, but there's doubt as to whether actual action will follow," expressing skepticism that despite strong statements, actual policy actions remain to be seen.

Recently, certain sectors such as secondary batteries, nuclear power, power infrastructure, and cosmetics have shown strength. However, concerns are emerging that if interest rate hikes materialize, the upward momentum of these leading stocks could weaken. Park Byung-chang warned, "But if interest rates are expected to rise from here, I'm saying that even these might lose their momentum." With the September simultaneous expiry and FOMC approaching, caution regarding market volatility is required.

Unlike July, when there was institutional buying, domestic institutions switched to selling in August. Foreign investors also continued their selling trend, deepening the supply-demand imbalance. Park Byung-chang pointed out, "Foreigners sold during the crash, but they also sold during the recent rally. So, looking at this overall trend, stocks only go up when one side buys aggressively, don't they?" He emphasized that the absence of follow-up buying from institutions is lowering the index's upward momentum.

Park Byung-chang explained, "These two, interest rates and war, are two of the biggest factors weighing down our market, and both situations have escalated." He emphasized that interest rates and geopolitical risks are acting as combined negative factors on the market. With the release of employment data, including the September ISM manufacturing index, market uncertainty is further increasing.

Historically, the US stock market has never performed poorly after midterm elections. Park Byung-chang commented, "The US market has never been bad after midterm elections. So, people think it will get better after the midterm elections, that it improves at the midterm election turning point, but the US doesn't seem that bad even now." He expressed optimism for a market recovery after the midterm elections. With various scenarios arising from the possibility of the Senate remaining and the House changing, the opinion is presented that long-term investment is needed even amidst investor anxiety.

For the dollar-yen exchange rate, a 1-2% downside is expected, while a positive outlook is given for the won-yen exchange rate.

Despite the news of Samsung Biologics' capital increase, many reports are not negative due to the strong fundamentals of its core business. Kim Jang-yeol advised, "Since the core business is so strong, it doesn't seem to be viewed negatively. However, with a capital increase, there's stock value dilution, so if you're investing, you might want to extend your time horizon," recommending a long-term investment approach considering the value dilution from the capital increase. For investors sensitive to volatility, it may be a time to consider refraining from investment.

If you are angry about a price drop, you may lack conviction in that industry. Kim Jang-yeol emphasized, "If the current price makes you angry, I believe you lack conviction in that industry. Everyone in the chatroom is an enemy. Do not think of them as allies." He warned that advice in chatrooms can be an 'enemy' that shakes an investor's mental state. Reminding of lessons like the past Samsung Electronics case, where opportunities were found amid pessimism, he stressed the importance of maintaining one's own firm investment mindset.

The Fed's short-term interest rate hikes can act as a defense against a surge in long-term interest rates. Park Jun-woo explained, "The conclusion is that it's very difficult to prevent interest rate increases. However, if short-term rates are raised a little, you can interpret it as preventing long-term rates from endlessly surging, thus avoiding the worst-case scenario for the stock market." Considering that market rates are already priced in, the stock market's adjustment can be seen as a healthy process, and given US economic performance, two interest rate hikes are unlikely to cripple the economy.

Yeo Do-eun stated, "There are macro pressures and everything. I also think it's a very difficult period, but we are in a time when M6's S&P 500 valuation is attached," referring to the current market situation. A sector rotation rally is expected, utilizing the valuations (10-15 times) of sectors other than semiconductors.

With deposits currently below 100 trillion won, there is a possibility of individual investors selling to avoid capital gains tax. Yeo Do-eun stated, "Now, with deposits already below 100 trillion, it seems like they might sell more. This is also one of the reasons why I say shareholder returns are not a panacea, but it was individuals who drove our market up in the first half." Caution is needed regarding the impact of changes in individual supply and demand, which led the market in the first half.

Currently, capital expenditure is at least twice the 10-year average. Yeo Do-eun explained, "Capital expenditure is at least twice the 10-year average. These volumes will come out next year. So, I believe the actual numerical momentum for many companies, including SOOBUJANG companies, that can deliver this volume cycle will be next year." This forecasts that many companies, including SOOBUJANG firms, will benefit from the actual volume cycle next year, interpreted as a sign of recovery in semiconductor equipment demand.

Yeo Do-eun analyzed, "I'm quite interested in the construction sector next year. Non-residential includes industrial, engineering, and factory projects. Normally, housing profits overwhelmingly dominate construction stocks. But this time, there's peculiar momentum coming from the non-residential, non-housing market." Benefits from data centers and semiconductor factory expansions are anticipated, and it is expected that domestic non-residential volume can offset sluggish overseas orders.

However, he also acknowledged that inflation data had been good twice, and then contradictorily stated that this alone should not lead to assumptions of no rate hikes. Kim Jang-yeol summarized his remarks, "Inflation is a significant problem, so we have no choice but to raise interest rates. However, it's also true that inflation data has been good twice. But don't think that just because of that, we won't raise rates." This 'Gordon Ramsay-esque' rhetoric, alternating between praise and criticism, ultimately led the market to interpret it as a tightening message, yet also caused confusion.

The financial sector's attitude, which was previously negative towards Bitcoin, is changing. Nowadays, the focus is more on the tokenization of existing financial assets (RWA) and infrastructure building rather than Bitcoin itself. Kim Joon-woo explained, "In the past, people would talk about Bitcoin being bad, but these days, almost no one is judging Bitcoin as bad; instead, they are investing while emphasizing other, much more important things." Citing examples like Mirae Asset's acquisition of Korbit, he stated that customer base and infrastructure acquisition are emerging as core digital asset strategies for the financial sector.

As real estate tokenization progresses, practical liquidity limitations are being pointed out. The problem of liquidity fragmentation, due to the unique characteristics of each individual building, is becoming serious. Kim Joon-woo noted, "Official secondary trading markets have not been extensively created for individual properties. And because liquidity is not consolidated into one place but rather dispersed across each building, the fragmentation of liquidity is too severe," emphasizing the absence of official secondary trading markets for individual properties and the problem of liquidity fragmentation.