Stock market actions on Wednesday were pretty much a repeat of what we have seen in the past few weeks. ST Index continued its descent to lower lows of around 2930 in the morning, the major culprit being a Dow Jones drop of 32.49 points to 11809.87 yesterday.
Fortunately, the situation improved after lunch break and STI gained 24.46 to end at 2986.62. A corresponding surge in Hang Seng and Shanghai indices motivated investors into taking positions in blue-chips. SingTel, with an imminent dividend payout, was one of the beneficiaries. Nevertheless, volume remains a trickle at 1.023 billion while gainers/losers stand at 289/222.
Can we expect the STI to build on this uptrend on Thursday or free-fall below 2900 level?
The US market offers a glimpse of hope as it rebounded slightly, led by financial and technology stocks. Investors welcomed a drop in oil prices of more than $2 a barrel, it fell by as much as $5.05 to $131.95 right after the Energy Information Administration revealed weekly petroleum supplies rose by 800,000 barrels against predicted shortfall of 1.7 million barrels.
In recent days, oil wavered in a tug-of-war between threats of supply disruptions in Nigeria and a production increase by Saudi Arabia.
Oil researcher Daniel Yergin testified on Capitol Hill as part of an ongoing inquiry that prices are being driven up by speculators, but the credit crisis and weakened dollar compounded the severity. I believe if speculative trading is curbed, the bulls will venture forth more confidently.
As expected, the Federal Reserve announced its decision to hold interest rates. No impetus was given to the stock market as investors remain cautious about the economy.
From the Fed’s statement: “although downside risks to growth remain, they appear to have diminished and inflation expectations have increased,” it seems that a full blown depression has been averted and the stimulus package is effective.
With the Fed’s stance on inflation toughening, growth is placed on the back-burner, interest rate increase may come earlier than expected, could even be in September.
There are fears that European Central Bank which controls the strength of the 15-nation euro, may increase interest rate to combat inflation too. This is the equivalent of a Federal Reserve rate decrease.
Investors are now sitting on cash and are afraid of entering the market as they could be locked into their positions with the primary trend moving downhill. For those who insist on entering the stock market now, it is risky to take huge positions, plonk for blue-chips with your spare money.