Stock Markets Bearish Despite Tumbling Oil Prices

The ST Index closed Monday at 2934.12 after a slight rebound of 41.58 points. Regional markets performed strongly as well. But don’t get all excited just yet. A recovery depends very much on what surprises Wall Street have in store for us.

Well, on its opening this week, Dow Jones experienced a wild swing when it increased nearly 100 points only to sag by 56.58 points to end at 11231.96. The Standard & Poor’s 500 index lost 0.8% while Nasdaq composite lost 0.1%.

A huge slide in financial stocks of Fannie Mae and Freddie Mac reflected the sombre mood after Lehman Brothers forecast that both companies need to raise $75 billion in capital if new accounting rules go through.

Fears about the credit crisis were revived and other major banks like Bank of America, JP Morgan and Wachovia were not spared.

Investors were also cautious, pending second-quarter earnings reports that kicks off Tuesday with Alcoa and General Electric taking centerstage. You don’t have to be a rocket scientist to conclude that balance sheets will not be pretty and should mirror first quarter results.

Sell-off in oil prices did not relieve worries about consumer spending and inflation. Instead, Wall Street stumbled as oil services stocks including Exxon Mobil and Chevron fell. Crude for August delivery fell more than $5 on Monday to below $140 a barrel on the New York Mercantile Exchange.

Simmering tensions in the Middle East cooled when Iranian officials agreed to renew talks with the European Union over its nuclear program and the enrichment of uranium. Oil responded positively to the news and a stronger dollar further depressed oil prices.

It is too volatile to take huge positions in the stock market at this point of time, any spikes will be wiped out quickly by profit taking. On the local front, second quarter earnings (to be announced at end of the month) will give investors a gauge of how far business conditions have deteriorated.

While we can expect most stock listings on SGX to remain profitable following exceptional performances in 2007, rising fuel prices, higher cost of loans and discretionary spending will definitely have an impact on the bottom line moving ahead.

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Filed under Banking, Currency, Economy, Inflation, Oil, Stocks

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