🚨 September Stock Market Jinx Broken
Today Korean Economic News for Beginners | 2025.10.04
0️⃣ KOSPI Breaks 3500, US Also Rises But October Earnings Are Key
📌 No 'Gloomy September' This Year...Now October Overheating & Earnings Check Are Crucial
💬 KOSPI broke through the 3500 mark for the first time (closing at 3549.21), and US stock markets also avoided the September weakness jinx. However, the S&P500's forward P/E has risen to its highest level in the past 5 years, and with concentration in a few big tech stocks and declining sector correlation signaling potential short-term correction, October's major big tech earnings and semiconductor industry conditions will be the turning point. Historically, September is known as the worst month for stock markets, but this year both Korea and the US unusually continued their upward trend. Strong performance by semiconductor giants, the AI theme, and interest rate cut expectations supported investor sentiment, but experts say the October earnings announcements will determine future direction given current overvaluation levels.
1️⃣ Easy Explanation
This September broke the traditional "stock market weakness month" pattern, with both Korean and US stock markets closing higher. However, because stock prices have risen so much and become "expensive," whether October's company earnings can meet these high expectations has become the key issue.
First, let me explain why September is traditionally a bad month for stock markets. Looking at past data, September has the lowest average returns of any month. This happens because after the summer vacation season ends and the second half of the year begins in earnest, investors become more conservative, and profit-taking selling tends to increase ahead of year-end settlements.
But this year was different. Korea's KOSPI index closed at 3549.21 at the end of September, breaking through the 3500 mark for the first time ever. This was thanks to major semiconductor stocks like Samsung Electronics and SK Hynix rising sharply on expectations of increased artificial intelligence (AI) demand. US markets also broke the weakness jinx with both the S&P500 and NASDAQ rising in September.
But there's a problem here. Stock prices have risen too much. Looking at "forward P/E (price-earnings ratio)," one of the indicators experts often use, the current forward P/E of the US S&P500 index has reached its highest level in the past 5 years. This means current stock prices are quite expensive compared to the profits companies are expected to earn over the next year.
Let me explain with an example. If a company's stock price is $100,000 and the company is expected to earn $10,000 in profit one year later, the forward P/E is 10 times. If the stock price rises to $150,000 but the expected profit is still $10,000, the forward P/E becomes 15 times. In other words, you're buying the stock of a company making the same profit at a higher price.
Another concern is that the rally is concentrated in just a few big tech companies. This year's US market gains were led by a small number of large tech stocks like NVIDIA, Microsoft, Apple, and Google. Similarly in Korea, gains by semiconductor giants like Samsung Electronics and SK Hynix pushed up the index.
In this situation, if bad news comes out about these few stocks, the entire market can shake significantly. For example, if Samsung Electronics announces weaker-than-expected earnings, the entire KOSPI index could fall sharply.
That's why October is important. October is when "earnings season" begins, with third-quarter earnings announcements in full swing. Investors are watching to see if companies announce good enough earnings to justify the high stock prices. Especially if semiconductor industry and AI-related company earnings don't meet expectations, concerns arise about a possible short-term correction.
Historically, October is also known as an unstable month for stock markets. Major crashes like Black Monday in 1987 and the 2008 financial crisis occurred in October. Of course, this doesn't necessarily mean it will repeat this year, but it's a time when investor caution can increase.
In the end, whether September's rally continues or faces correction depends on October's earnings announcements.
2️⃣ Economic Terms
📕 Forward P/E (Price-Earnings Ratio)
Forward P/E is the current stock price divided by expected earnings per share over the next 12 months, and is a key indicator for judging whether a stock price is expensive.
- The higher the P/E, the more investors expect future growth from the company, or the stock is overvalued.
- Generally, when P/E significantly exceeds the long-term average, it's considered "expensive," and if earnings don't meet expectations, the likelihood of stock price correction increases.
- The S&P500's forward P/E being at a 5-year high suggests the market has entered overvaluation territory.
📕 Earnings Season
Earnings season is the period when listed companies officially announce their quarterly sales and profits, a time of increased stock price volatility.
- Announcements are typically concentrated within a month after quarter-end, and October is when third-quarter earnings announcements begin.
- The difference between market consensus (expectations) and actual earnings significantly impacts stock prices.
- Major tech stock earnings announcements affect not only individual stocks but also overall index direction.
📕 Sector Correlation
Sector correlation is an indicator showing how much different sectors' stock prices move in the same direction.
- High correlation means most sectors rise or fall together, indicating a healthy market condition.
- When correlation becomes abnormally low, it signals heavy concentration in specific themes or few stocks.
- This phenomenon is used as an indicator warning that the market is unstable and short-term correction likelihood has increased.
📕 Big Tech Concentration
Big tech concentration refers to market gains being concentrated in just a few large technology stocks.
- A small number of stocks like NVIDIA, Microsoft, Apple, Google, and Amazon lead overall index gains.
- Because these stocks have large market capitalizations, the index rises strongly during good times, but shocks are also large when bad news hits.
- In Korea, semiconductor giants like Samsung Electronics and SK Hynix play a similar role.
3️⃣ Principles and Economic Outlook
✅ Background of Breaking the September Weakness Jinx
Let's analyze why the traditional weakness jinx was broken this September and what forces drove the market.
First, the artificial intelligence (AI) theme raised investor expectations. As AI technology commercialization progressed rapidly after ChatGPT's release, growth prospects for related companies brightened. NVIDIA, which produces AI chips, rose nearly 200% this year alone, and Samsung Electronics and SK Hynix also showed strong gains on expectations of increased demand for high-performance AI memory. This AI boom overwhelmed September's traditional weakness atmosphere.
Second, interest rate cut expectations improved market sentiment. The US Federal Reserve cut the base rate by 0.5 percentage points in September, entering a full-fledged interest rate cutting cycle. When interest rates fall, companies' funding costs decrease and the present value of future cash flows increases, raising the attractiveness of stocks. Interest rate cuts are especially positive for growth stocks like tech stocks.
Third, expectations for semiconductor industry improvement were high in the Korean market. As memory semiconductor prices bottomed out and turned to recovery, earnings improvement was expected for Samsung Electronics and SK Hynix. Especially, SK Hynix's high-bandwidth memory (HBM) products being exclusively supplied to NVIDIA brought major benefits, becoming the main force pushing KOSPI above the 3500 line.
The three positive factors of AI theme, interest rate cuts, and semiconductor industry improvement neutralized the September weakness jinx.
✅ Overvaluation Concerns and Warning Signs
Let's examine the overvaluation concerns the market currently faces and signals suggesting correction possibility.
First, valuation indicators have reached dangerous levels. The S&P500's 12-month forward P/E is currently around 22 times, significantly above the 20-year average of 16-17 times. This means investors have very optimistic expectations about companies' future profit growth. The problem is that if these high expectations aren't backed by actual earnings, stock prices can correct sharply. Historically, when P/E exceeded 20 times, returns over the next year tended to be lower than average.
Second, market gains are excessively concentrated in a few stocks. About 60% or more of this year's S&P500 index gains came from the top 10 stocks. This means the market is narrow, not a healthy bull market. If a few big tech companies like NVIDIA, Microsoft, Apple, or Meta announce below-expected earnings or show signs of slowing growth, the entire market could suffer a major shock. Korea's market also faces similar risk with Samsung Electronics and SK Hynix's combined market cap exceeding 30% of KOSPI.
Third, correlation between sectors is becoming abnormally low. In a normal bull market, most sectors rise together. But currently, tech stocks are rising significantly while traditional industries like finance, energy, and materials are stagnating or declining. This phenomenon often appeared at bubble peaks or just before corrections in the past. It's interpreted as a signal that investors are crowding into specific themes without considering the overall market fundamentals.
Overvalued valuations, concentration phenomenon, and gaps between sectors all show the market is vulnerable to short-term correction.
✅ The Importance of October Earnings Season
Let's analyze why October earnings announcements are the key variable determining future market direction.
First, whether heightened expectations can be met is crucial. The corporate profit growth rate currently reflected in the market is over 15% year-over-year for the third quarter. Big tech companies especially are expected to show 20-30% high growth. If actual announced earnings fall short of these expectations or fourth-quarter guidance comes out conservative, stock prices could correct significantly. For example, if Samsung Electronics forecasts that memory semiconductor price recovery is slower than expected, the entire KOSPI will take a hit.
Second, it's time to confirm whether AI investment effects appear in earnings. Companies like Microsoft, Google, and Meta are investing massive amounts in AI infrastructure. Investors wonder whether these investments are actually translating into increased sales and profits. If they invested heavily but show no visible results, skepticism about the AI theme could grow. Conversely, if AI-related sales increased explosively, it could provide additional upward momentum.
Third, the actual degree of semiconductor industry improvement can be assessed. While memory semiconductor prices have turned to recovery, the actual extent of Samsung Electronics and SK Hynix's operating profit improvement can only be confirmed through earnings announcements. It's also an important opportunity to understand how strong demand really is for AI high-performance memory (HBM) and whether there are oversupply concerns. If semiconductor industry improvement is slower than expected, Korean markets could face heavy disappointment selling.
October earnings season will be a 'moment of truth' verifying whether high stock prices can be justified.
✅ Future Outlook and Investment Strategies
Let's summarize the outlook and strategies investors should consider in the current market situation.
First, prepare for increased volatility in the short term. October is historically a volatile month, and this year political uncertainty is added with the US presidential election ahead. Also, individual stock price swings typically increase during earnings season. Therefore, it's important to hold part of your portfolio in cash or set clear stop-loss criteria. Especially if you're heavily concentrated in just a few large stocks, the risk is high, so consider diversification.
Second, stock selection emphasizing earnings and cash flow is needed. In overvaluation territory, it's safer to invest in companies actually making profits with sound cash flow, rather than stocks moving only on themes or expectations. For example, even among AI-related stocks, choose companies with actual increasing AI sales rather than stocks with only vague expectations. Also, stable stocks with high dividend yields can play a role in stabilizing portfolios during volatile periods.
Third, tech stock-centered flows are still expected to continue long-term. Even if short-term corrections come, the long-term growth trend in technology fields like AI, cloud, and semiconductors won't change. Therefore, strategies of holding quality tech stocks long-term without being shaken by short-term volatility remain valid. However, at overvalued points like now, a split purchase approach when corrections come is more advisable than investing large amounts all at once.
The three principles of preparing for volatility, selecting based on earnings, and maintaining long-term perspective are important in current market conditions.
4️⃣ In Conclusion
This September broke the traditional weakness jinx with both Korean and US markets continuing to rise, but we've now reached an important point where earnings must support the elevated stock prices.
The main forces behind the September rally were the AI theme, interest rate cut expectations, and semiconductor industry improvement expectations. Especially in Korea, Samsung Electronics and SK Hynix pushed KOSPI above the 3500 line for the first time ever, while in the US, a big tech-led rally centered on NVIDIA continued.
However, the market is currently sending several warning signals. The S&P500's forward P/E has risen to the highest level in the past 5 years, raising overvaluation concerns, and gains are concentrated in a few big tech stocks, making the market narrow. Also, abnormally low correlation between sectors signals potential correction.
In this situation, October's earnings announcement season will be a very important turning point. If earnings meet heightened expectations, it could lead to a year-end rally, but if they fall short or forecasts are conservative, short-term correction will be unavoidable. Especially, big tech companies' AI investment effects and the actual degree of semiconductor industry improvement will be key points.
From an investor perspective, it's important to prepare for short-term volatility while maintaining the view that long-term tech stock growth trends will continue. Diversify your portfolio, invest centered on stocks with solid earnings and cash flow, and use corrections as opportunities to buy quality stocks.
In the end, October earnings will answer whether September's rise was sustainable. It's a time requiring careful approach, balancing optimism and caution.
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