U.S. President Donald Trump is enforcing the worst-case scenario of imposing high mutual tariffs, causing global stock markets to show a uniform downturn. Analysts in the securities market say that technical calculations regarding the bottom of the domestic stock market will not hold. For the time being, they will likely be swayed by every comment.
The announcement of mutual tariff imposition by President Trump is causing a sharp decline in global stock markets. Concerns over stagflation are growing in the U.S., and immediately after the tariff announcement, the U.S. Standard & Poor's (S&P) 500 index plummeted by 10.5% over two days, and the Nasdaq index fell by 11.4%. The decline in the stock market is expected to continue. As of 3 p.m., S&P 500 futures and Nasdaq index futures have fallen by 3.6% and 4.6%, respectively.
At the same time on this day, the KOSPI index has plummeted by more than 5%, falling below the 2340 level. Meanwhile, the won-to-dollar exchange rate, which had dropped to 1430 won due to the resolution of political uncertainties last week, rose by more than 30 won on this day, surpassing 1470 won during the trading session. This is a result of a massive sell-off by foreign investors amid increasing concerns about mutual tariffs and the sharp decline in the U.S. stock market.
The Korea Exchange temporarily halted trading after the KOSPI futures index sharply dropped this morning by triggering a sell-side car. The sell-side car is activated when the futures price falls by more than 5% and lasts for a minute. This activation is the first in eight months since the dramatic collapse of global stock markets on Black Monday, August 5 of last year.
There are resigned analyses in the securities market stating that calculations for technical lows are essentially meaningless.
Joo Jung-gi, a researcher at SK Securities, said, “Given that the market is in a situation that is hard to view as rational, I believe that the logic of valuation bottoms may not operate.” He noted, “Because the problems cannot be resolved cleanly in a short period, if additional noise occurs, further declines can happen, and any rebounds will not be significant.”
He also remarked, “If additional declines occur, evaluation losses could increase, but I believe that executing slow partitioning purchases would yield a better risk-return ratio,” adding, “It is important to avoid excessive use of leverage (borrowing, etc.) that cannot be managed during this process.”
Han Ji-young, a researcher at Kiwoom Securities, warned, “The risk of Trump’s mutual tariffs, which started to intensify on April 2, is engulfing everything and causing a series of sharp declines in the stock market,” adding, “The domestic stock market will also start feeling the effects of the U.S.-led crash from this day forward.” Although the domestic stock market has established downward rigidity at a price-to-book ratio (PBR) of 0.83, it may still face additional shocks.
Despite improvements in technical indicators such as strong non-farm payrolls in March, the stock market is struggling under tariff shocks, according to a researcher. He stated, “U.S. stocks are recording unprecedented declines, induced by China’s retaliatory tariffs against the imposition of U.S. mutual tariffs and hawkish statements from Chair Jerome Powell,” noting that the Fear & Greed Index, a key investor sentiment indicator, has fallen to extreme fear at 4 points, the lowest since the pandemic dropped it to 2 points in March 2020.
One researcher predicted, “Even though domestic political uncertainties have eased since the impeachment verdict, the ongoing series of declines in the U.S. stock market, tariff news flow, March consumer price index (CPI), expected inflation for April, and the upcoming announcement of Samsung Electronics' provisional results will contribute to increased volatility in the future.”
In the future, retaliatory tariffs from the countries imposing tariffs are likely to further increase market volatility. Concerns are rising that uncertainty in the market could expand as former President Trump has hinted at additional tariffs in retaliation.
Lee Eun-taek, a researcher at KB Securities, analyzed, “Tariff-imposing countries are likely to approach negotiations carefully in connection with their domestic corporations and will likely respond strongly.” He added, “Considering the decline in the U.S. stock market, it is possible that a situation unfriendly to President Trump may develop over time.”
The Federal Reserve's interest rate decisions are also a factor increasing uncertainty. The Fed may not lower rates as much as the market desires. Regarding expectations for a rate cut, Chair Jerome Powell noted, “There is no need to rush, and I will move after confirming the data.”