The trade war crisis is heightening due to U.S. President Donald Trump’s imposition of tariffs on Canada, Mexico, and China, and concerns about an economic recession are growing, causing the U.S. stock market not to escape weakness this year. Domestic investors, known as 'Seo-hak-gaemi' (those investing in U.S. stocks), who had bet on a rise in the U.S. stock market, are feeling anxious.
As investors worry about how long the stock price weakness will continue, securities firms analyzed that the U.S. stock market is merely undergoing a short-term correction and emphasized the need to focus on corporations with high net income growth rates during this period.
The Nasdaq Composite Index on the New York stock market closed at 17,468.33 on the 10th (local time), after rising to 20,056.25 on the 19th of last month, falling nearly 13% in about a month. The Standard & Poor’s 500 Index also fell 8.6% during the same period, and the Dow Jones Industrial Average fell 6.6% compared to its annual peak (44,882.13).
This reflects a significant impact from the economic crisis potential due to the weak employment indicators alongside the global tariff war initiated by President Trump, which has dampened investor sentiment.
The volatility index (VIX) of the Chicago Board Options Exchange, known as the 'fear index' on Wall Street, also surpassed 27 last night, recording its highest level of the year. The fear index quantifies the fluctuations in the stock market and generally moves in the opposite direction of stock prices. This index has surged 60% this year alone.
However, forecasts from securities firms suggest that this movement will not last long. Park Hyun-jung, a researcher at DAISHIN SECURITIES, noted, 'Although the VIX index has recently risen, this is a level that can occur during a short-term correction phase.' He explained, 'Historically, the U.S. stock market has experienced healthy corrections of around 10% even during trending upswings, so this drop appears to be a correction within an upward cycle rather than a trend decline.'
He emphasized, 'If it is not a trending decline such as an economic recession, this is a time when investors can consider medium to long-term buying amid excessively weakened investor sentiment.'
If you are contemplating which stocks to invest in, taking an interest in corporations with high net income growth rates is also a method. Hana Securities cited Alphabet, the parent company of Google, as a U.S. stock worth noting during the current corrective phase. This year, Alphabet's net income is $115.1 billion (about 168 trillion won), making it the top among S&P 500 companies, but it ranks fifth in market capitalization. Lee Jae-man, a researcher at Hana Securities, projected, 'Alphabet has the largest profit size and strong high quality characteristics (high profitability and good free cash flow), so the potential for stock price increase is high.'
The researcher also recommended Broadcom, a U.S. semiconductor design company, and AbbVie, a pharmaceutical company. He stated, 'These two corporations are among the top 30 largest companies by market capitalization in the S&P 500 with the highest net income growth rates this year,' adding, 'While there is a base effect, the profit size is relatively large, so this year's price-to-earnings ratio (PER) based on net income is not high at 28 times and 17 times, respectively.' The PER for NVIDIA is 38 times.
The correction phase is expected to conclude when the uncertainty surrounding Trump's policy eases.
Kim Seung-hyuk, a researcher at Kiwoom Securities, said, 'Currently, the emphasis is on the 'words' regarding policy direction, and it will gradually be time to 'implement' them.' He added, 'As policy implementation progresses and compromises with reality are made, there is a possibility that the uncertainty arising from Trump’s policies will decrease.' He continued, 'A point for tone adjustment is expected to come after May, and until then, the U.S. stock market correction will continue.'