Bull vs Bear battle rages on in the Singapore stock exchange. The Straits Times Index increased by a mere 9.09 points to 3143.89. Trading volume was weak at 1002.7 million. Gainers/Losers stood at 234/268.
To me, such a market performance is poor especially when we consider a multitude of positive news for the US economy. This implies an increasing number of investors sitting on cash as they are unsure of the next profitable stock, given the hard-hit oil and financial sectors.
I am glad that the Federal Reserve continued their inflation fighting mission. Bernanke emphasized that US will not degenerate into 70s-style inflation. Not surprisingly, oil prices slides to $122.30 a barrel and dollar is up. The US government had released reports of their weekly oil inventories which indicate a bigger-than-expected rise in gas stockpiles.
Other optimistic economic indicators for the day:
1. Institute for Supply Management revealed its services sector index dipped to 51.7 from 52 in April, better than predicted drop of 51. A reading above 50 indicates growth in the sector.
2. Payroll services firm ADP reported non-farm private employment rose 40,000 last month, against forecasts for a decline of 30,000. Friday’s government employment report will be crucial in confirming this trend.
3. The government adjusted its first-quarter productivity to a gain of 2.6% from an initial read of 2.2%, topping forecasts for a rise to 2.5%
However, news of ratings agency Moody’s placing bond insurers MBIA and Ambac on review for a possible downgrade of their credit ratings dampened market sentiment.
We should not kid ourselves that the worst of the banking troubles is over but at the same time, do keep things in perspective. Since the beginning of the year, we are already forewarned on the prospects of massive write downs and rising foreclosures, so these announcements are just affirmations of how bad the situation is.
Some experts insist that banks must get back into the pink of health else the economy remain in recession mode. If more adverse financial reports come out, certainly the Fed will be under pressure to step in with interest rate cuts. However, oil prices are set to rise due to the coming winter, without effective control of inflation, any signs of recovery for the economy could be wiped out.
Should we save a select, reckless and irresponsible few by printing more money and cutting interest rates while putting the general well-being of other Americans, including those around the world in distress with soaring inflation?
If oil prices exceed $200 a barrel, it can force a vicious spiral into depression and even wars. Governments across the world and the United Nations have to come together to resolve this situation. I am not giving a doomsday prophesy but the way I look at it, suppose the world economy mirrors the 1929 Great Depression, a lot of companies will close down and people get retrenched and are waiting for handouts, there is no need for oil anymore.
Speculating in oil and then enduring 3-4 years of malaise is sheer stupidity. Meantime, I remain watchful for good opportunities to enter the market. The earnings outlooks for many US tech and consumer companies appear promising. The recent sell-off in bonds is also a sign that investors may be abandoning bonds in favor of stocks. In other words, investors have a greater appetite for risk now.
We cannot expect the banks to get their act together immediately but if they are on track to resolve their problems by mid 2009, the stock market will respond accordingly. I believe banks will get over this crisis, the law of the jungle demands the fittest survives. If you are staying outside of the stock market currently, at least keep an eye on the situation.