The keyword that dominated the first half of 2023 stock market was none other than 'economic downturn'. In conclusion, the first half demonstrated resilience without a downturn, which allowed the stock market to show significant growth.
So, what can we expect for the latter half?
To summarize briefly,
👉 It seems that the upward trend in the stock market will continue in the latter half of the year. The likelihood of a dramatic downturn like the 'economic downturn' is low.
👉 However, it might be difficult for the stock market to experience as significant growth as it did in the first half. Although it may not lead to a downturn, there is a possibility that the economy might slow down compared to the current situation.
👉 The three factors that supported the economy until the first half are expected to lose some strength in the latter half. Let me explain them one by one.
1️⃣ Consumption
In fact, what influences the U.S. economy the most is 'consumption', which accounts for about 70% of the GDP. In the first half, the Federal Reserve implemented a strong tightening policy, but consumption was also strong, so the economy was not significantly affected.
However, in the latter half, consumption might weaken to some extent.
✅ Contraction in the job market
In the first half, companies were actively hiring. However, now the number of job openings has reached its peak and is gradually decreasing. On the other hand, the number of people looking for jobs is increasing. In other words, there may be a situation where there areplenty of people available, but companies looking to hire are in short supply. In such a situation, wages may decrease naturally, and there is a high possibility that consumption may also decrease.
We can see a trend where demand (number of job openings) is decreasing, while supply (economic activity participation rate) is continuing to increase.
✅ Depletion of subsidies
Also, the scale of various support measures created during the COVID-19 period has decreased significantly. It used to be as large as 2.1 trillion dollars just two years ago, but recently it has decreased to the 500 billion dollar range. This can be seen as an indication that people's financial situations are gradually deteriorating. 'Excessive savings' are also starting to show signs of reaching their limits. *Source: Federal Reserve Bank of San Francisco May Report
2️⃣ Service Industry
If we were to summarize the industrial trend until the first half in one sentence, it would be: 'Manufacturing was sluggish, but the service industry compensated.'
📉 Manufacturing: First of all, during the first half, manufacturing showed signs of slowing down. While there was significant growth when there was increased demand for IT devices and cars during COVID-19, recently, demand has decreased again.
📈 Service Industry: On the other hand, the service industry saw significant growth as COVID-19 began to subside. Industries like tourism and accommodations, which had been affected, started to recover rapidly.
Although manufacturing and the service industry showed a reversed trend, the service industry compensated for the sluggishness in manufacturing. As a result, the overall economy showed a favorable performance.
However, now that the service industry has somewhat stabilized, it may be difficult for it to recover as significantly as before.
As an example, let's take a look at the 'ISM Non-Manufacturing Index', which can be used to gauge the future economic trend. It hasn't reached '50pt or below', which indicates 'contraction', but it has been on a continuous decline.
3️⃣ Inflation
Thirdly, we need to consider the current inflation situation.
Why? When prices are high, the economy tends to appear better than it actually is. It's like a kind of 'inflation filter' being applied. In such a situation, there tends to be more employment and consumption than what is actually needed.
☝️ Let me give you an example.
Let's say a company with annual revenue of 100 billion won achieved a 10% performance growth. Originally, the company's revenue should have been 110 billion won. But if prices also increased by 10%? Then the revenue would increase to 121 billion won. If you didn't know that prices had gone up, you might mistakenly think that the performance has improved by that much.
However, the situation is different now. Inflation has peaked and is gradually subsiding.
While stable prices are undoubtedly a good thing... conversely, this means that the 'inflation filter' is gradually fading away.
As we begin to objectively view the actual economic situation, both employment and consumption are likely to be adjusted.
To summarize it one last time,
👉 Firstly, in the latter half, employment may shrink, and excessive savings may start to show signs of decline, leading to a slowdown in consumption.
👉 The service industry is also trending downwards after reaching its peak. It may be difficult for it to compensate for the sluggishness in manufacturing any further.
👉 And with inflation subsiding? The overheated economy may cool down.
Today I have shared somewhat darker content about the 'economic slowdown'.