Divergent directions

The market settled higher at the end of trading last week to 7,763.21, ending with a weekly gain of 48.39 points or 0.63 percent.

The market’s advance was encouraging. It brought back the market to positive mode.

The market’s total gain for the week, however, was relatively small. It may be too small to have any impact and make a difference in the overall trend. Added to that, it was just a passive gain. It was the resultant difference between the accumulated first two days of gains of the market equivalent to 204.39 points, less its trading losses in the remaining three days of the week of 156.0 points.

The market’s daily gain on Monday was 101.62 points or 1.32 percent. This was augmented by another gain of 102.77 points or 1.31 percent on Tuesday, where at this time the market was able to hit 7,919.21.

This proved to be the highest level the market could reach over the week as it tanked the next day, Wednesday. It dropped down to 7,873.64, with a daily loss of 45.57 points or 0.58 percent.

The market slipped once more on Thursday to 7,816.27 with a day’s loss of 57.37 points or 0.73 percent and dropped down further to 7,763.21 for another daily loss of 53.06 points or 0.68 percent on Friday.

Opening later across the globe was the US market. Stocks soared to save what analysts call a “turbulent week” and made the Dow Jones Industrial Average post what analysts said was its “largest one-day point gain in three months.”

Stock prices were lifted on Friday by investors’ favorable reaction to the latest report of the US government on nonfarm-payrolls data, which “pointed to a pace of employment growth that was healthy enough to suggest that the economy maybe on solid footing, but not so much as to quicken the first Federal Reserve rate hike.”

The latest report showed that some 223,000 new jobs were created in April. This was taken by Wall Street investors as “a sign the US economy is back on track after growth stalled in the first quarter and hiring briefly nosedived.”

All other segments of the US economy, with the exception of the energy sector, contributed to the new employment data which pulled the unemployment rate “down to 5.4 percent from 5.5 percent to mark the lowest level since mid-2008.”

At last Friday’s session, the S&P 500 closed 28.09 points or 1.4 percent higher at 2,116.09 and gained 0.4 percent over the week.

The Dow Jones Industrial Average also jumped 267.05 points or 1.5 percent to 18,191.11 and finished the week 0.9 percent higher and the Nasdaq Composite ended 58.0 points or 1.2 percent at 5,003.55, finishing the week roughly where it started.

Notwithstanding the favorable results, many US investors still doubt the obvious direction of stock prices on Wall Street, just like many local participants also doubt and question the posted direction of our market arising from last week’s results.

Economy’s direction    

In last week’s briefing conducted by its resident representative, Shanaka Jayanath Peiris, the International Monetary Fund (IMF) reiterated its confidence that the Philippine economy will continue with its growth momentum. He said that while the IMF sees a slowing down in potential growth in the world and in Asia, the Philippines will be an exception.

Last month, the IMF placed the country’s growth potential for 2015 between 6.5 and 6.7 percent. It will make a fresh estimate following scheduled consultations it will conduct this week.

It is anticipated that IMF’s new estimate will be somewhere at the lower range of its previous estimate. As such, it will be again lower than the government’s forecast of 7 to 8 percent.

Nevertheless, IMF’s growth estimate will still be higher than the 6.1 percent actually posted by the country last year.

The IMF particularly cited the country’s rising investments portfolio and robust demographics as its essential drivers of growth.

What could be holding the market to its current bearish mode is next year’s growth rate. The IMF shares the same common forecast in its economic growth in 2016. IMF feels that it may slow down to 6.3 percent, which is again much lower than the government’s target.

One serious threat to next year’s growth potential is the expected divergence in the monetary policies of countries like the US. This poses some downside risk to the country. It could lead to shifts in interest rates and tighter financial conditions. It could siphon off as well as divert investment funds.

Identified to further pose a threat to the country’s growth potential is the slowdown in the activity in Japan and in China. These are among the biggest trade partners of the Philippines, Peiris observed.

Notwithstanding these observations, the IMF still expects the Philippines “to remain as Southeast Asia’s growth driver,” despite lower growth forecast in 2016. Manufacturing and exports could still be weak, but domestic demand continues to be strong. “This suggests that growth is strong overall,” Peiris added.

Bottom line spin  

The market continued to be heavily affected by the selling activities of foreign investors triggered by valuation concerns. Stock prices had hit record highs in recent months and they are expected to correct.

What kept the markets ending higher last week was the fact that foreign investors’ participation was smaller last week at 55.96 percent as compared to the previous week of 57.69 percent.

Should more favorable news on the US economy’s status continue to unfold, it is expected that this will further create downward pressure on stock prices this week.

In view of the above observations, it should be more rewarding to trade your stock positions, again.

(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