As the remarks of U.S. President Donald Trump, which were once extreme, calm down, investors' attention will likely shift from the White House to the Federal Reserve Board (Fed). Jerome Powell's remarks at the Federal Open Market Committee (FOMC) meeting scheduled for June 6-7 are expected to impact the financial markets.
As concerns over tariffs diminish, the remarkable rebound in U.S. technology stocks is also a noteworthy change. After U.S. big tech companies like Microsoft (MS) and Meta Platforms reported improved earnings for the first quarter, expectations have risen that they will continue to expand investments in artificial intelligence (AI), driving up stock prices.
The domestic political climate ahead of the early presidential election is also significantly impacting the market. The Supreme Court overturned the lower court's not guilty ruling in the case against Lee Jae-myung, the Democratic Party of Korea's presidential candidate, on May 1. The next day, former Prime Minister Han Duck-soo announced his candidacy for the upcoming presidential election. Amid a continuous selling spree by large foreign investors, retail investments are flowing into politically themed stocks.
Last week, the domestic stock market showed mixed trends. As tensions over the tariff war eased, the KOSPI index rose 0.5% over the week, while the KOSDAQ index fell. Although the atmosphere regarding trade conflicts has somewhat eased investors' sentiment, foreign funds continue to flow out. Furthermore, this week, the stock market will be closed for three days (May 7-9) due to Children's Day and a substitute holiday, leading to relatively quiet transactions.
Following the holiday, significant news to watch is the FOMC of the U.S. Federal Reserve. Global investment banks (IB) expect the Fed to keep interest rates unchanged this month. A key point to note is whether Chair Powell will provide a signal for interest rate cuts.
So far, Chair Powell has stated that the Trump administration's tariff policy is stimulating prices, focusing on 'inflation defense.' However, with the U.S. economy contracting in the first quarter, concerns of stagflation have grown. This is why it is important to pay attention to Powell's change in attitude. The U.S. economy's growth rate in the first quarter recorded a negative (-)0.3% compared to the previous quarter, marking the first quarterly negative growth since the first quarter of 2022.
However, the negative growth in the U.S. economy for the first quarter was significantly influenced by a surge in imports. The Trump administration's announcement of high tariffs on trading partners has led to an increase in stockpiling demand, which is reflected in the indicators.
Jo Byeong-hyeon, a researcher at DAOL Investment & Securities, noted, 'While there is a tendency for Trump's rough actions to calm somewhat, it could improve short-term investor sentiment,' adding that 'it is difficult to find evidence that the U.S. Fed's attitude has changed, and caution is needed as there is a potential for the second-quarter real indicators to slow down.'
This month, the movements of global big tech companies that are continuously expanding AI investments are expected to be highlighted. As MS, Meta, and Apple continue to announce strong first-quarter results, they emphasize their positions on sustaining large-scale AI investments. As a result, U.S. technology stocks, which had sharply declined due to the impacts of the tariff war, are rebounding.
Although the growth trend of the U.S. economy declined in the first quarter, experts note that the contribution of investments in the IT institutional sector has increased. Investment in the information processing device sector surged in the first quarter, which is interpreted as being reflected by the increased AI-related investments from Amazon and MS.
If the expansion of AI investments by big tech stimulates investor sentiment in the domestic stock market, it is expected to positively impact the stock prices of domestic corporations related to AI semiconductors, data centers, and cloud infrastructure.
However, uncertainty has increased in the domestic stock market ahead of the early presidential election. While big investors continue to adopt a wait-and-see approach, personal investment funds are being concentrated in small to mid-sized politically themed stocks.
Experts are advising to invest in sectors where performance improvement is expected. Noh Dong-gil, a researcher at Shinhan Investment & Securities, remarked, 'From a performance perspective, attention is drawn to sectors such as media, utilities, hotels and leisure, and retail distribution,' adding, 'Since these sectors have low correlations with exports, and after the domestic political risks are alleviated, new government policies aimed at stimulating domestic demand are expected to benefit these sectors.'