Navigating Post-'Black Monday': Is the Market on an Uptrend or Downtrend? Key Factors for This Week

Following the significant drop earlier this month, the domestic stock market has begun to recover, erasing much of its losses.

Following the significant drop earlier this month, the domestic stock market has begun to recover, erasing much of its losses. This recovery comes amidst improving economic indicators and a rebound in major tech stocks. This week, key events including the Jackson Hole Economic Policy Symposium and central bank meetings in Korea and the U.S. will be pivotal in determining whether this rebound continues. This blog post will explore the current market trends, key upcoming events, and their potential impact on the stock market.

1. Market Recovery Post-'Black Monday'

The domestic stock market has managed a moderate rebound after the steep drop earlier this month, recovering a significant portion of its losses. The market turmoil, driven by recession fears in the U.S., has been somewhat alleviated by strong economic indicators. Additionally, the unwinding of the yen carry trade (borrowing yen at low interest rates to invest in higher-yield assets) has helped stabilize investor sentiment.

The KOSPI closed at 2,697.23 on August 16, marking a 4.20% increase from the previous week and successfully rebounding after six weeks. Since the 'Black Monday' on August 5, the index has risen in seven out of eight trading days, approaching the 2,700 level. Positive economic data, including stable U.S. consumer price index (CPI) and producer price index (PPI) figures, and stronger-than-expected retail sales, have eased recession concerns.

Interest in big tech stocks, particularly those involved in AI semiconductors, has also been revived. Foreign investors transitioned from net selling to net buying, purchasing 1.8 trillion won worth of stocks last week. Institutional investors also returned to net buying, while individual investors took profits by selling 2 trillion won worth of stocks.

Sector performance varied, with technology and machinery stocks seeing significant gains. In contrast, food and beverage and insurance sectors experienced declines. The KOSDAQ index also rose by 2.86%, reaching 786.33 and marking its first rebound in five weeks.

2. Upcoming Key Events and Their Impact

Looking ahead, the stability of the market will hinge on several key events this week. These include the Jackson Hole Economic Policy Symposium, the release of the July FOMC minutes, and the Bank of Korea's monetary policy meeting.

The market expects the Bank of Korea to maintain its current interest rates due to ongoing concerns about household debt. Meanwhile, the Jackson Hole meeting, scheduled from August 22-24, will focus on the effectiveness and transmission of monetary policy, with Fed Chair Jerome Powell’s speech on August 23 being particularly significant. 

In the U.S., recent strong performance by major indices and tech stocks, such as Nvidia, has provided a boost to market sentiment. However, concerns about potential market volatility related to the September FOMC meeting and upcoming U.S. elections are still present.

3. Strategy Moving Forward

As the market recovers, caution is advised. Analysts suggest focusing on sectors with proven performance and robust earnings potential, such as semiconductors and technology. The upcoming FOMC meeting and central bank decisions will be crucial in shaping market trends.

Jung Ho Byun of IBK Investment & Securities predicts that the rebound may lose momentum and advises a cautious approach, suggesting a focus on individual stocks rather than broad market positions. Meanwhile, Yoo Myung-gan of Mirae Asset Securities emphasizes the importance of targeting sectors and stocks with clear earnings visibility.

This week’s monetary policy events will play a critical role in determining the future direction of the stock market. With the KOSPI nearing the 2,700 level and positive indicators supporting the recovery, strategic and informed investment decisions will be key. Stay tuned for updates and adjust your portfolio accordingly to navigate the evolving market landscape effectively.