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Stocks or cash

The author is an S Team reporter of the JoongAng Ilbo.

Have I ever been so interested in prices in another country? The October Consumer Price Index (CPI) announced by the U.S. Department of Labor on Nov. 10 rose 7.7 percent from a year ago. The CPI has nearly returned to January’s level at 7.5 percent after soaring to 9.1 percent in June. Anticipation arose that prices are about to stabilize.

Optimism has gained momentum in the stock market, as seen in the rally in the New York Stock Exchange. On Nov. 10, Nasdaq soared by 7.35 percent in one day, and the Korean stock market jumped the next day. Some predict that Kospi would regain the 3,500-point level for the short term and will rally till the end of the year.

Many securities firms adjusted their Kospi forecast upward. They have their reasons. As surging prices brought a sudden increase in interest rates, it is a meaningful signal that prices are falling after hitting a peak. The strong dollar trend from rate hikes also has been weakened, another factor that can contribute to the northward movement of the stock market.

Is there a smooth path ahead of us? The United States has lifted the benchmark rate by 0.75 percentage points four consecutive times. But after the positive CPI signal, the U.S. is expected to raise the Fed rate by 0.5 percentage points in December. While we welcome the slowdown, the increase is not stopping. With the inflation fixed at 8 percent level, 7 percent CPI might sound good enough. But it is far from the goal of 2 percent.

For 10 years until last year, the Nasdaq went up seven times — a work of ultra-low rates. This year is exactly the opposite. The adjustment of global stock markets begins and ends with an interest rate hike. The benchmark rate in the U.S. has already reached 4 percent and will continue to go up for sure. To discuss a rebound trend, we need to understand not only the timing for stopping the hike, but also how long the high rate will remain high. As the economy is struggling, it is hard to estimate the extent of the slump. That’s why many experts put more weight on prudence than optimism.

The time for commercial banks to pay 5 percent interest for deposits has returned. That was unimaginable just a year ago. Money won’t flow elsewhere unless a greater return is guaranteed. Investment is bound to shrink. Stocks and real estate are helpless in the face of soaring interest rates. You still need to cherish cash over others for now.
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