Eerie story on market rebound
US stocks ended last Friday with solid gains: the Dow Jones Industrial Average (DJIA) leaped 126.89 points or 0.79 percent to 16,154.39 while the S&P 500 rose 8.80 points or 0.48 percent to 1,838.63 and the Nasdaq composite rose 3.35 points or 0.1 percent to 4,244.03.
DJIA and S&P500 advanced in six of the last seven trading sessions. Both gained 2.3 percent at the end of the week.
The Nasdaq also rose for the seventh time in its last seven sessions, recording a net gain for the week of 2.9 percent. Incidentally, the close last Friday was Nasdaq’s “highest since July 2000,” reports added.
US stocks started to gain on Tuesday with the public appearance of the new head of the Federal Reserve, Janet Yellen, who assured investors that she would continue the Fed’s low-interest rate policy. This was bolstered by the move of the US Congress to raise the borrowing limit of the US government.
However, economic data released last week showed that US factory output and retail sales in January were weak. Factory production was said to have “plunged 0.8 percent” while US retail sales “dropped” in January.
Despite the weak economic report, US stocks performed strongly for the week because, as news reports say, “US investors focused on company earnings and brushed off another weak economic report.”
Market track
Two or three weeks back, equity markets reeled due to reports of a “slide toward a currency collapse in emerging markets, political turmoil in some parts of the Middle East and economic slippage in the South American continent.”
These reports badly affected the performance of regional markets, including ours, that fell in the last two consecutive weeks.
For the week ending Jan. 31, our local market fell 150 points or 2.43 percent in a shortened trading week of four days due to the observance of the Chinese New Year. This was followed by another weekly loss of 30.05 points or 0.50 percent in the week ending Feb. 7.
Last week, our market continued to move at pace with other equity markets, particularly the US.
This time, though, our market is trending north.
On Monday, trading ended with a gain for the day of 31.11 points or 0.52 percent. This was followed on Tuesday with another gain of 63.78 points or 1.06 percent as the market settled at 6,106.03.
The market climbed further on Wednesday but the gain was eventually limited to 6.28 points or 0.10 percent. Volume turnover rose a bit and so did the value turnover.
The cap on the gains became the prelude to the slowdown on Thursday with the market ending with a loss of 10.59 points or 0.17 percent: Investors sold their big cap stocks either to take profits (because the market had gone up by at least 100 points in the last three days) or reduce risk exposure as prices also started to fall because of the selloff.
This was in addition to the possibility that the selloff was triggered also by the need to raise cash for the previous day’s trade which most probably consisted of cheap small cap stocks.
On Friday, the market recovered, tracking the upward direction of the three major indices of Wall Street and ended with a weekly gain of 102.52 points or 1.71 at 6,113.66, on lower volume and value turnover of 0.8 billion shares and 4.94 billion, respectively.
Contributing positive leads
Also, news reports last week said that China’s inflation was steady in January, which could give its government room to stimulate the economy if a slowdown—as perceived—worsens.
China’s consumer prices also rose 2.5 percent in January compared to the same period a year ago. And “the rise in politically sensitive food costs” also decelerated to 3.7 percent from a reported figure of 4.1 percent in December.
Added to these developments in the world’s next biggest economy is the observation that many American investors now believe that the US economy is getting better.
With other commentaries pointing to improved US market conditions, there is now this suggestion that the correction in the US equity market may now be over.
Along with this comes the idea that the weakness in other equity markets highly affected by the US, like ours, may already be over, too.
Putting together the commentary of Black Rock Inc. CEO Laurence D. Fink that the selloff in the last three weeks or so in emerging markets has created a buying opportunity because valuations had gone down comparatively, our market’s rebound could just be in the offing, indeed.
Bottom line spin
It could be true: The US economy seems to be getting better and while economic data are still mixed, earnings data and forecasts have been positive, a hint that the recent market corrections could be over.
There is, however, this market commentary made by Mark Hubert of MarketWatch. He claims that there are “eerie parallels” between the current path of the US market and that which led to the 1929 crash.
Looking at the charts plotted together, stocks should still be on the rise. This will continue until—as the charts seem to show—“the market will face a rough period later this month and in early March” and eventually hit the inevitable between April and May.
When he first wrote about it in November, he said nobody believed him. Critics and skeptics dismissed his work as a “shameless exercise.”
Precious few are laughing now, however, as the similarities between the two paths continued to appear over the last two months.
(The writer is a licensed stockbroker of Eagle Equities, Inc.. You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com
