The SpaceX initial public offering has ignited excitement in global stock markets, while fears of war in the Middle East have begun to subside. As significant market-moving events have diminished, investors are once again focusing on a key factor: interest rates. It has become clear that the direction of the stock market is ultimately determined not by flashy themes or temporary geopolitical risks, but by the cost of money.
The SpaceX IPO symbolizes the market's thirst for innovative companies. The massive growth narrative combining artificial intelligence, the space industry, and defense has sufficiently stimulated investors' appetite for risk. However, the success of a large IPO does not always translate to a rise in the overall stock market. In fact, a major public offering can strain the liquidity of existing stocks. While growth stocks appear to be regaining attention, the valuation of these stocks is also discounted based on interest rates.
The same applies to war risks. Whenever tensions in the Middle East escalate, oil prices and exchange rates fluctuate, and the preference for safe assets increases. However, the easing of war fears does not eliminate market uncertainty. What remains in the wake of geopolitical risks is inflationary pressure. If oil prices surge again and supply chain disruptions resurface, central banks will inevitably become more cautious about lowering interest rates. Even if the war ends, the shadow of interest rates lingers.
The U.S. Federal Reserve faces a similar dilemma. If inflation remains stubborn while employment does not collapse, the justification for lowering interest rates weakens. The market consistently anticipates rate cuts, but the central bank is wary of reigniting inflation. This is why some global investment banks view the likelihood of rate cuts this year as low. While the stock market hopes for a return of liquidity, the central bank is focused on prices, wages, oil, and inflation expectations.
The South Korean market is no exception. If U.S. interest rates remain high for an extended period, the pressure on the won will increase, and foreign capital flows will become unstable. Even if the domestic stock market rises due to optimism surrounding semiconductors and artificial intelligence, growing interest rate burdens will inevitably lead to valuation debates. In South Korea, where loan rates, corporate bond rates, and real estate financing are all influenced by interest rates, the direction of U.S. rates directly impacts household and corporate economic sentiment.
Investors should not be focused on the next big theme. Speculating on which stocks will rise after SpaceX or which sectors will benefit post-war is unlikely to yield long-term success. The more critical question is where interest rates will settle and how long they will stay there. Prolonged high rates will diminish future profits for growth stocks and increase costs for heavily indebted companies. Conversely, if rate cuts materialize, liquidity could return to risk assets across the board.
Markets are always in search of new narratives. Companies venturing into space, the end of wars, and the AI revolution are all compelling stories. However, the oldest rule of capital markets remains unchanged: when money is cheap, risk is embraced; when money is expensive, risk is reduced. The SpaceX IPO and war risks are ultimately just scenes in the larger narrative shaped by the significant variable of interest rates.
Investors need to look beyond the events and assess the market post-event. Now is the time for evaluation rather than celebration. It is essential to consider whether expectations for rate cuts are excessive, whether inflationary pressures are resurging, and which assets are vulnerable to prolonged high rates. The next direction of the stock market is likely to be determined not in space, but in the Federal Reserve's meeting room. In the wake of flashy themes, the market has returned to the most fundamental question: where are interest rates headed?
* This article has been translated by AI.
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