The Remaining Variable Is the FOMC... "Earnings-Driven Rally, Limited Impact From Rates"

[Financial News] As geopolitical risks eased after the United States and Iran reached a ceasefire agreement, the market is focusing on remarks by Kevin Warsh, chairman of the Federal Reserve System (Fed). Monetary policy is seen as a key factor that could determine the direction of investor sentiment. However, securities analysts say the current rally is driven by earnings, so the impact of interest rates is likely to be limited.
According to the financial investment industry on the 16th, the Fed will hold the Federal Open Market Committee (FOMC) meeting on the 16th and 17th local time to decide its interest rate policy.
A hold on the benchmark rate is widely expected at this meeting. According to the CME FedWatch Tool, the probability of keeping rates unchanged at this FOMC stands at 98.6%.
What the market is watching is the Fed's policy direction. Although the war in the Middle East has for now come to an end, inflation concerns remain, raising the possibility that policy could lean toward tightening rather than easing.
An interest rate hike is one factor that can fuel risk-off sentiment. Even if rates are not raised immediately, growing uncertainty about future policy could dampen investor confidence.
Heo Jae-hwan, a researcher at Eugene Investment & Securities Co., Ltd., said, "Even if the Fed does not raise rates in June or July, major central banks such as the European Central Bank (ECB) are gradually shifting toward tightening," and added, "During a policy transition, volatility in the stock market is inevitable."
He added, "The ceasefire agreement could be positive for the stock market, but issues related to Strait of Hormuz transit fees remain, and it will take time for oil production facilities to normalize." He noted that "the policy shift is a matter of pace."
Still, most analysts believe the impact of interest rate moves on the stock market will be limited because the current rally is based on earnings. The fact that the possibility of higher rates has already been priced in also supports that view, as inflationary pressure rose during the Middle East war.
Kim Sunghwan, a researcher at Shinhan Securities, said, "Monetary policy, liquidity, and interest rates are no longer key variables for stock prices," and predicted that "higher rates may increase short-term volatility, but the stock market's upward trend will remain solid even if the benchmark rate is raised a few times."
He added, "If borrowing is excessive or the growth potential of the AI industry is weak, even a slight rise in rates could curb demand. But borrowing by market participants is not excessive yet, and revenue growth is outweighing interest rates. Unless the Fed raises rates very aggressively, the current trend in the stock market will not be shaken by rates."
Daejun Kim, a researcher at Korea Investment & Securities Co., Ltd., also said, "Even if Chairman Warsh takes a hawkish stance, the market will feel relieved if inflation falls," and forecast that "falling oil prices are likely to create expectations that inflation has passed its peak, and stock prices will ultimately be determined by corporate earnings outlooks."

jisseo@fnnews.com Reporter Seo Min-ji Reporter