To conclude last week’s misadventure, the stock market looks promising but turned ugly… there aren’t many happy investors around, including me. A few factors were involved in the slackening performance of the stock market.
The sky-high price of crude oil is proving to be a major stumbling block, if it doesn’t stop rising soon, stock markets will continue to tumble. There is a direct correlation between the massive sell-offs and investors’ stampede to take cover in oil and commodities. How much further oil will rise is anybody’s guess but I believe there is a good chance it may retreat in the short term due to profit-taking.
Next is the Federal Reserve’s stern message – they have done their best and you are on your own now, any more interest rate cuts will do more harm than good. Since September 2007, they had slashed federal funds rate by 325 basis points, to 2% from 5.25%. Faced with such a tough outlook and no more cheap loans, stocks and Treasuries went into free fall last Thursday.
The question is whether the two month old bear-market rally is coming to an end for Singapore stocks? From what I have seen, stocks on the SGX will continue to be dependent on Wall Street news but it is showing an admirable resilience.
For investors who buy into stocks which have strong fundamentals (I personally favor those trading at 4-6 times P/E ratio), there is not much downside. Continue to stay in the market if you are holding on to blue chips while divesting the speculative stocks. If there is a correction, you should be ready to take advantage.