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The market is in an adjustment phase for the time being due to the “withering summer market”!　How will the market develop in the second half of this year?

In the first half of this year, the yen weakened against the U.S. dollar and stock prices rose in the foreign exchange market. The Nikkei Stock Average hit an all-time high in February for the first time in 34 years, reached the 40,000-yen level in March, and most recently rose to the 42,000-yen level on July 11.

The U.S. presidential election is scheduled for November this year, and who is elected will have a major impact on the economy and other world affairs. The financial markets are likely to be watching this trend closely and will likely experience both joy and sorrow. We asked experts about the market development in the second half of this year.

Mutsumi Kagawa, chief global strategist at Rakuten Securities Research Institute, has the following view on the stock market in the second half of this year.

Japanese stocks will be in a “summer slump” through August and September, and will continue to trade in a firmer market, and may even fall if any shock occurs. If any shocks occur, they could fall. Looking at the behavior of U.S. stocks over the past 30 years, once the U.S. presidential election is over, stocks in the U.S. lose their strength and end the year higher, and Japanese stocks will probably do the same.

Takashi Hiroki, chief strategist at Monex, Inc.

For the time being, it will be the end of summer and a summer vacation. The Nikkei Stock Average recently hit the 42,000-yen level. The Nikkei Stock Average hit the 42,000-yen level the other day, which is a ‘speeding violation. We may be in an adjustment phase for a while.

He added, “We may see a correction phase for a while. Toward the end of the year, he believes Japanese stocks will “pick up” as uncertainty over the U.S. presidential election dissipates.

All of the experts expect that Japanese stocks will be in an adjustment phase for the time being in a “summer slump,” but that they will pick up toward the end of the year after the outcome of the U.S. presidential election is known. Until then, they also believe that the stock market will be susceptible to trends in the U.S. presidential election and other factors, and that market ups and downs (volatility) will increase due to a strong sense of uncertainty.

Trends in the U.S. Presidential Election…Nikkei Average to End the Year 4 … 50,000 yen Nikkei Average may reach ¥40,500 at the end of the year

How high will the Nikkei Stock Average rise toward the end of the year? Mr. Kagawa thinks the upside is around 43,000 yen and the immediate downside is around 38,000 yen. Hiroki thinks the upside is around 45,000 yen and the immediate downside could be as low as 37,000 yen.

How should we look at the U.S. presidential election, which has a major impact on financial market trends? President Biden had been seeking reelection, but his advanced age and growing health concerns led him to decide to withdraw from the presidential race. The Democratic candidate to succeed him is certain to be Vice President Kamala Harris, who is expected to fight against the Republican candidate, former President Trump.

Initially, there was a “what-if tiger” scenario that former President Trump would possibly win the U.S. presidential election. The scenario changed to an “almost tiger” when local polls reported an advantage for former President Trump. However, with the change in the Democratic Party’s nominee, that scenario has become uncertain.

Japan’s LDP presidential election is also uncertain, and Japanese stocks will be “weak until the fall”.

Former President Trump’s “America First” policy, high tariffs for protectionist trade, and a stance of prioritizing his own country over international cooperation have also caused some caution in the financial markets. Regarding the U.S. presidential election, Mr. Kagawa said, “I can’t make up my mind yet,

When Mr. Trump took office last time, every time he tweeted something on social media, the stock market was affected,” he said.

He adds, “The stock market was affected every time Trump tweeted something on social media when he took office last time. He also believes that uncertainty over the U.S. presidential race “will limit the upside in the market.

Hiroki points out that the LDP presidential election in Japan is also uncertain. Whether Prime Minister Fumio Kishida will seek reelection despite his unpopularity, or whether he will abandon his bid for reelection and run another candidate, will change the course of Japan’s leadership. With both Japan and the U.S. uncertain about their top choices, Hiroki believes that Japanese stocks may be “weak until the fall.

Let us now take a look back at the rally in Japanese equities in the first half of this year. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, believes that “Japan’s unique favorable factors are the main reason for the rise in stock prices.

First, the Tokyo Stock Exchange (TSE) advocated last spring the realization of management that is conscious of capital costs and stock prices. This call for listed companies to improve capital efficiency and information disclosure has been well received, especially by foreign investors, and has made Japanese stocks a target for global investment, according to Mr. Ichikawa.

Second, companies raised wages substantially, raising expectations for a virtuous economic cycle. Third, the outlook for corporate performance has improved. In addition to corporate reforms, the weak yen also provided a tailwind for earnings, especially for exporters.