Historically, Korean and U.S. earnings momentum has moved in similar patterns, but Korea has shown greater volatility.
Since the second half of 2023, a decoupling trend has emerged between earnings and stock prices.
Korea’s earnings momentum is at its highest level this year, yet the stock market remains stagnant.
During Trump’s first term, U.S. tax cuts boosted American corporate profits, while Korea suffered from trade disputes with China.
Opinion
The current stock market movement appears to be detached from fundamental earnings data, suggesting that irrational investor sentiment may be driving price action rather than economic fundamentals.
Core Sell Point
The Korean stock market is decoupling from earnings fundamentals, making investor sentiment a dominant driver. Caution is needed at current price levels.
Korean and U.S. Earnings Momentum Breaks from Market Trends
A historically unusual decoupling phenomenon has emerged between corporate earnings and stock market performance in both Korea and the U.S. Unlike in the past, the synchronization between earnings momentum and stock indices has weakened significantly.
Since the second half of 2023, Korea’s stock market has remained largely range-bound, while corporate earnings have completed an entire cycle of growth and contraction. A similar disconnect is occurring in the U.S., where stock market gains are not fully aligned with earnings fundamentals, adding to market uncertainty worldwide.
Higher Earnings Volatility in Korea
The volatility of corporate earnings in Korea has been much larger than in the U.S., reflecting the market’s greater sensitivity to global economic uncertainty and political risks.
For instance, during Trump’s first term, U.S. corporate profits surged due to large-scale tax cuts, whereas Korean corporate earnings plummeted amid trade tensions with China. However, under the current Trump administration, Korea’s earnings momentum is behaving differently than before, showing resilience despite policy uncertainty.
Why Is the Korean Market Stagnating Despite Strong Earnings?
Currently, Korea’s earnings momentum is at its highest level of the year, yet the stock market has failed to rise accordingly. This breaks from past patterns, where earnings typically served as a leading indicator for stock prices. The lack of a clear market direction suggests that stock movements may be driven more by investor sentiment than fundamentals.
During such periods, irrational behaviors like meme-driven rallies or FOMO (Fear of Missing Out) tend to dominate the market. This increases the risk of stocks rising sharply despite weak fundamentals.
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