Earnings-Driven Market
A market that begins after the Liquidity Market ends and later transitions into the Bull Flattener.
A bear steepener is a phenomenon in which long-term interest rates rise at a faster pace than short-term interest rates, widening the yield curve. A bear steepener generally implies rising inflation expectations or broad price increases across the economy.
(It can be divided into the early earnings-driven market and the late earnings-driven market.)
- In the early earnings-driven market
- Materials / parts / non-ferrous metal stocks rise (raw materials / steel, chemicals, paper, cement, etc. remain strong)
- Exports rise (autos, electrical & electronics, chemicals, machinery)
- Institutional investors begin large-scale accumulation
- Focus on retail stocks and export-related stocks / among export-related stocks (those heavily bought by foreigners and institutions)
- (A stage focused on expanding profits rather than risk management)
- Late earnings-driven market
- Export stocks continue to rise
- Domestic demand / consumption-related stocks improve, economic recovery improves, the employment market improves, household incomes rise, and consumption increases
- Beyond economic recovery, overheating symptoms emerge, rate hikes are needed & rate hikes are implemented
It refers to a market situation in which the economy fully recovers and stock prices rise as corporate earnings improve. It follows the liquidity-driven market, and the earnings-driven market gradually spreads across the entire industry. The liquidity-driven market and the earnings-driven market combined are referred to as the primary bull market.
When the economy begins to recover in earnest, corporate facility investment increases, corporate earnings rise, and more companies return to profitability. Corporate demand for funds increases, so unlike during the liquidity-driven market, interest rates gradually rise, and more companies conduct paid-in capital increases. As a result, market funds flow into the stock market but also directly into companies.
The earnings-driven market has a longer stock price rally and a larger upward move than the liquidity-driven market. Also, as the market becomes led by leading stocks with improving earnings, polarization among stocks can occur. The rule emerges that stocks with improving earnings rise and stocks with poor earnings fall.
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Topics: Market Cycle
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