Market Caution Grows as US Events Loom; Analysts Urge Stock Selection

Investor sentiment is freezing up despite the US Federal Reserve's rate cuts and short-term liquidity injections, as concerns over an artificial intelligence industry bubble resurface. With key US economic indicators including employment and inflation data, along with Micron's earnings release all scheduled for this week, many expect heightened market volatility. Securities analysts suggest that even if liquidity-driven rallies continue, a phase of sharp differentiation among stocks based on earnings and cash flow is likely to begin in earnest.

The KOSPI closed at 4,090.59 on Wednesday, down 76.57 points or 1.84% from the previous session, according to Korea Exchange. This marks the first time the index has fallen below the 4,100 level since December 5, six trading days ago. Large-cap stocks, particularly semiconductors, led the decline. Samsung Electronics (005930.KS) fell 3.76% to the mid-100,000 won range, while SK hynix (000660.KS) dropped 2.98%, with selling pressure concentrated across the semiconductor sector. Doosan Enerbility (034020.KS) fell 3.26% and Hyundai E&C (000720.KS) dropped 6.28% as skepticism spread over nuclear power demand from AI data centers.

The domestic market's downturn reflects the reignited AI bubble debate in US markets, analysts said. The Fed signaled an easing stance by cutting rates, hinting at additional cuts in the first quarter of next year, and officially announcing plans to resume short-term Treasury purchases. Despite these policy signals, the liquidity expansion has not clearly benefited risk assets broadly as scrutiny intensifies over AI industry profitability.

This wariness was immediately reflected in US stock prices on December 12. Broadcom plunged more than 13% despite reporting better-than-expected earnings, as concerns mounted over declining order backlogs and AI business profitability. "After Broadcom and Oracle's earnings releases, existing concerns about AI data center investment and profitability remained unresolved, and negative news from some AI infrastructure companies compounded the sentiment decline," said Cho Jun-ki, analyst at SK Securities. "This trend is directly spilling over to domestic semiconductor stocks."

Such patterns have recurred in past liquidity easing cycles. According to Hana Securities, when the Fed's Treasury holdings increased during rate cut or hold periods since 2009, domestic markets recorded average monthly returns of 1.1% for KOSPI and 0.9% for KOSDAQ, but actual performance varied significantly by stock. This year, only 42 of the top 100 companies by market capitalization on KOSPI and KOSDAQ outperformed the KOSPI through December 12.

Analysts forecast a market environment focused on "separating quality from inferior stocks" rather than index-level moves. The AI industry is expanding from B2B semiconductor-focused business into B2C territory, while space-related industries are emerging as new growth sectors amid expectations of a SpaceX listing. "Opportunities may grow in software, industrials, and healthcare sectors, but selective approaches focusing on companies with high operating margin growth, net profit growth rates, operating cash flow growth, and free cash flow ratios are necessary," advised Lee Jae-man, analyst at Hana Securities.

Markets view the US nonfarm payrolls report, consumer price index, and Micron's earnings scheduled for this week as key variables determining short-term market direction. With employment and inflation data released in the same week due to shutdown aftermath, volatility could expand depending on deviations from expectations. Rate decisions from major central banks including the Bank of England, European Central Bank, and Bank of Japan are also cited as factors affecting risk appetite across global financial markets.

Investment experts identified late this month through early next month as a meaningful buying window. "December through January is typically called the 'Santa Rally,' but since 2000, Nasdaq's average return in early to mid-December was negative 0.2%, showing no clear seasonality," said Kim Sung-hwan, analyst at Shinhan Investment Corp. "Rather, late December through early January showed the strongest seasonality, with Nasdaq averaging 0.8% gains during that period."