The performance of Wall Street’s three main indices in February was described by the US market as the best month since October 2011.
Actually, the Dow Jones industrial average or Dow, S&P500 and Nasdaq all fell and closed below their peaks as they ended the month last Friday.
The Nasdaq failed to hit the 5,000 mark, as it dropped 24.36 points or 0.5 percent to 4,963.53. The S&P500 fell 6.24 points or 0.3 percent to 2,104.50 and the Dow fell 81.72 points or 0.5 percent to 18,132.70.
Market commentaries, however, maintained that despite Friday’s trading results, Wall Street or the US equities market, in general, is as strong as ever.
The said commentaries noted that the Dow, S&P500 and Nasdaq still ended on high grounds at the close of trading last month. As pointed out, the trading dip last Friday “did little to dent gains of the month.”
Our market, too, has been on a long upward climb when it stopped in its tracks in the last two days of trading due to profit-taking. It also closed off its record levels that the PSEi ended with a weekly loss of 94.82 points or 1.21 percent at 7,730.57.
Among those that dragged down the PSEi on profit-taking were SMPH, ALI, SM, AC and TEL. Their prices fell despite their being the market’s top seven most actively traded stocks last Friday.
SMPH fell by P0.44 or 2.16 percent to its closing price of P19.76 per share; ALI closed at P36.25 per share, down P0.65 or 1.76 percent.
SM dropped 2.22 percent or the peso equivalent of P20.00 to P880.00 a share; AC and TEL were down P12.50 or 1.71 percent and P28.00 or 0.88 percent, to P717.00 and P3,162.00 per share, respectively.
The performance of the All Shares index last week also gave signs of profit-taking: When it closed at 4,498.61 with a weekly net loss of 38.45 points or 0.85 percent, the total value turnover during the week notably rose 71.86 percent.
Borrowing the logic offered in describing the performance and condition of the US market, our market is still “as strong as it can be” even if it closed off peak records in February. Despite the closing losses, it still ended in positive territory with a net gain of 154.15 points or 2 percent.
Local results
There is no question that stock prices had gone up in the last two months. In the process, almost all of the first and second liner stocks on the board right now are trading at the price-earnings ratio of 14 to 50 times.
The most actively traded stock that posted one of the biggest price climb last Friday now carries one of the highest price-earnings multiples in the market.
Its price action could be indicative of the market’s bullishness: Even if its price had been teetering on overbought territory, it continued to climb on account of the growth potentials of the company.
The government set the country’s GDP growth targets at 7 and 8 percent for 2015 and 2016, respectively. Standard & Poor (S&P) cut its economic growth forecast to 6.1 from 6.3 percent for this year, but raised its 2016 forecast to 6.3 from 6 percent.
World Bank’s estimate was 6.5 percent for 2015 and 2016, but forecasted 6.3 percent for 2017. The International Monetary Fund’s was 6.6 percent for 2015 and 6.4 percent for 2016. For Fitch Ratings, it was 6.2 percent for 2015 and 6 percent for 2016.
S&P expects Indonesia will expand by 5.6 percent in 2015 and 5.7 in 2016 and Malaysia to grow 4.6 and 5 percent in the same period. Thailand’s GDP is seen posting lower growth rate of 3.9 percent in 2015 and 4 percent in 2016.
First Metro Investment Corp. and the University of Asia and the Pacific feel the economy could grow by 7.3 percent this year. Seen contributing to the estimated growth are “the positive impact of cheap fuel prices on inflation (with oil prices seen to remain below $60 a barrel), higher domestic consumption ahead of next year’s elections, and the expected surge in infrastructure spending.”
The continued growth of the business process outsourcing sector and the recovery of the US economy are seen to further boost the country’s growth, they added.
Even with the contrasting forecasts, the Philippines may still perform better than its Southeast Asian peers.
Bottom line spin
The economic picture for the Philippines is supportive of a robust long-term equities market. And as the low interest regime remains, the stock market will continue to outshine fixed income investment options.
However, with how the market ended the month of February, I’m unsure of the short-term picture. I cannot accept the comforting idea implied by the commentaries used to describe the state of health of the three major indices of Wall Street to be representative of the market’s present condition. After its performance in the last two days of trading last week, its short-term outlook is unsettling.
Total losses last Friday amounted to almost 40 percent of total net gains earned by the market for February. Total gains could have climbed by 248.97 points or 3.37 were it not for the losses on Friday.
Investors’ actions and reactions in the last two days of last week could be revealing of more sell-offs in the coming days, be it profit-taking or not.
On the positive side, the sell-off last week could be a welcome development. The market has been overbought for a long time. Stocks seemed even more overpriced in the absence of new positive leads.
Moreover, there were more negative than positive news here and abroad in the last two weeks or so. With such, the market is understandably ripe for a technical pullback.
This pullback, however, may progress into a longer correction as in an intermediate consolidation that may define the market’s direction, at least, in March.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at marketrider@inquirer.com.ph, densomera@msn.com or at www.kapitaltek.com)