The US stock market is anticipated to see gradual gains in the second half of the year, driven by improving macroeconomic conditions and easing geopolitical risks in the Middle East, with continued investment in AI and semiconductor sectors emphasized.
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The current investment environment remains under the influence of macroeconomic and monetary policies. With faster-than-expected signs of economic indicator improvement, the US stock market is hitting historic record highs. These positive changes are stimulating market risk appetite and contributing to overall improvement in investment sentiment.
In April, the Personal Consumption Expenditures (PCE) price index rose 3.8% year-on-year, exceeding the Fed's policy rate of 3.75% at the time. However, by late July, it dropped to 3.7%, falling below the policy rate. This signified that the real policy rate entered negative territory, acting as a positive signal where inflationary pressures eased, interest rate anxieties subsided, and risk-taking sentiment recovered. Consequently, these changes fueled the stock market's ascent.
The PCE price index falling below the policy rate (3.75%), causing the real policy rate to enter negative territory, could lead to falling inflation, calming interest rate anxieties, and increased risk-taking sentiment. If this environment persists, the US stock market is highly likely to continue its overall upward trend. However, this hinges on the premise that geopolitical risks in the Middle East do not worsen beyond their current state.
Geopolitical risks in the Middle East are difficult to predict, but if no physical conflict occurs, there is less room for the situation to worsen. The US administration is showing moves to continue economic pressure on Iran with its allies. At this level, Middle East geopolitical risks are not expected to significantly impact the direction of the stock market.
The US Treasury responded swiftly, announcing it would double its bond buyback volume starting in September. This measure will psychologically reinforce the market's perception that bond selling will decrease, and long-term interest rates can stabilize. Therefore, US long-term interest rates are not analyzed as a significant variable that will severely impact stock market declines for now.
In the past, the threshold for the 10-year US Treasury yield was perceived as 4.5%, and for the 30-year, 5%. However, despite recent yields exceeding these levels, the US stock market has reached historic highs. This suggests that a high-interest rate environment is becoming established due to structural factors. Current factors like expanded fiscal policy and increased defense spending contribute to persistent upward pressure on interest rates. Therefore, it is proposed that the thresholds now be adjusted upward to 5% for the 10-year yield and 5.5% for the 30-year yield as new standards. Only if interest rates rise beyond these levels is it believed that downward pressure on the stock market would occur.
Past trends show that the stock market tended to adjust just before midterm elections, but performed well in the third year, the year after the election. The market decline related to this midterm election is analyzed to have already been priced into the market during the adjustment period in May and June. The view is that the market is currently focused on other issues and simply not realizing this pre-emption effect.
If the Democratic Party secures the House of Representatives after the midterm elections, President Trump's legislative activities are likely to face gridlock. In this scenario, President Trump is expected to intensify policy implementation through executive orders, which can be easily pursued under presidential authority. However, policy stances on key investment areas such as domestic supply chain establishment, AI semiconductors, and strategic minerals are expected to be maintained.
Quarterly earnings reports from major companies like Amazon confirm that AI investment is an essential cost for market leadership, and the growth of the cloud business segment clearly demonstrates increasing AI demand. The AI revolution is still in its early stages compared to the internet and mobile revolutions, so the debate over an AI overinvestment bubble is premature. It is predicted that beyond the agentic AI stage, the industry will enter the physical AI stage around 2028, which will support the continuous growth of the AI industry.
Continuous attention and investment in the semiconductor industry are necessary until the AI revolution cycle concludes. Global semiconductor sales growth rates and price recovery continue to be confirmed, and notably, South Korea's semiconductor export growth has recorded an upward trend for 17 consecutive months. Furthermore, major semiconductor companies like SK Hynix expanding their shareholder return policies further strengthen the positive outlook for the industry.
With signs of falling inflation and stabilizing interest rate anxieties, risk appetite is expected to increase again. The geopolitical risk between Iran and the US is unlikely to escalate into physical conflict, limiting its impact on financial markets. Furthermore, the continuous performance validation of the AI industry is expected to strengthen market confidence in the AI industry and drive up related stocks. Consequently, the US stock market is anticipated to rise gradually until the end of the year, so investors need not be overly concerned. The current macroeconomic environment presents many favorable factors for market growth, and the impact of specific risk factors on the overall market is expected to be limited.
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