[DigitalToday reporter Oh Sang-yeop (오상엽)] With global stock markets including the KOSPI continuing a record-high trend, attention in the domestic market is focused on whether earnings and the durability of flows can support further gains.

On May 1 (local time), U.S. stocks ended mixed as technology shares rose. The Standard & Poor's 500 index rose 21.11 points, or 0.3 percent, from the previous session to 7,230.12. The Nasdaq index gained 222.13 points, or 0.9 percent, to end at 25,114.44, with both hitting fresh record highs.

The Dow Jones index, however, fell 152.87 points, or 0.3 percent, to close at 49,499.27.

The industry sees an overweight strategy for South Korean equities as still valid. Expectations for end-of-war talks between the United States and Iran are lowering geopolitical risks, and confidence in semiconductor demand has been reaffirmed after Samsung Electronics delivered an earnings surprise, it said.

With the first-quarter earnings season getting into full swing, the chance is growing that sector rotation will appear, led by sectors that are undervalued relative to earnings.

Still, in the first week of May, key economic data releases are concentrated, which could increase short-term volatility. The most important schedule is U.S. April nonfarm payrolls and the unemployment rate to be released on May 8.

The industry is focusing on the possibility that the pace of growth in April nonfarm payrolls may slow from the previous month. The unemployment rate is expected to be around 4.3 percent.

If a slowdown in jobs is confirmed, expectations for the Federal Reserve to cut its policy rate could grow again. But if wage and inflation pressures are highlighted at the same time, the market interpretation could become complicated.

In the domestic market, semiconductors remain a key pillar. The industry sees the KOSPI as still in an undervalued zone even after it set a record high.

Whether sector rotation will spread beyond semiconductors is also a key question. The industry sees undervaluation appeal relative to earnings potentially standing out in energy, displays, IT home appliances, IT hardware, telecom services, securities and banking as the first-quarter earnings season progresses.

Buying interest may shift particularly toward sectors where strong earnings are confirmed but share-price reflection has been relatively slow.

On the flow side, it is positive that a money move into the stock market is continuing. Investor deposit balances and margin loan balances are staying at high levels, and funds for indirect investment through equity funds and exchange-traded funds are also increasing.

Another feature is that retail money, which used to center on direct investment, has recently shifted to a flow into equities through ETFs and funds.

The industry is focusing on the point that this money move is not simply a liquidity-driven market but a trend based on improving corporate earnings.

Still, international oil prices remain a burden. West Texas Intermediate prices are above $100 a barrel and U.S. gasoline prices have also exceeded $5 a gallon, which could increase inflation worries again. Higher oil prices raise corporate cost burdens and could weaken expectations for the Fed to pivot to an easing monetary policy.

Conversely, there is also a view that the United Arab Emirates' planned withdrawal from the Organization of the Petroleum Exporting Countries could weaken the oil market's price control.

In the short term, the Strait of Hormuz risk and a Middle East war premium are supporting oil prices. But in a post-war supply normalization phase, it could be a factor that lowers the upper bound for oil prices, the analysis says.

The exchange rate is another variable to check. Despite higher oil prices, a weaker yen and concerns about a hawkish Fed, the upside appeared limited in the 1,480 won range. If geopolitical tensions rise again, exchange-rate volatility could widen, but more weight is being placed on improved passage through Hormuz and the possibility of a weaker dollar.

In particular, after the KOSPI broke above its previous high and formed a new high, there have been many cases where existing leading sectors continued to hold leadership.

Sectors that led the KOSPI's record-high break in April this year include hardware, machinery, semiconductors, steel, defense, construction, shipbuilding, secondary batteries, energy and chemicals.

Among them, advice is emerging that a selective approach is needed, focusing on companies and sectors with large improvements in operating profit margins in the next quarter.

In an environment where high oil prices and interest-rate uncertainty coexist, companies that can improve profitability by controlling costs rather than relying on revenue growth are more likely to receive higher valuations.

Lee Jae-man (이재만), a researcher at Hana Securities, said, "In a macro environment where Fed policy rate hikes and cuts coexist, a sector rotation strategy remains valid that increases weight in companies among existing leading sectors expected to show a large rise in operating profit margins next quarter."