How long has it been since Wall Street posted consecutive gains? For nearly two weeks, we have seen a rebound only to be followed by more losses the following day.
Well, Wall Street broke out of their trance (posting more than 200 points gains in two sessions) but regional stock markets were still mixed in reaction.
The Straits Times Index closed the week at 2,847.73, down by 16.37. Volume was weak at 1,057.6 million while gainers/losers stood at 161/389. Clearly, investors are waiting on the sidelines for convincing signals to enter the treacherous market.
I am relieved to see Wall Street continue its rally on Friday – Dow Jones ended up higher by 49 points at 11,496.57 but Nasdaq dropped 1.28%. Weakness in earnings by Google, Microsoft and AMD were reflected in their plummeting share prices. Only IBM outperformed expectations.
Blue chips were boosted by encouraging financial sector news. Citigroup announced $2.5 billion quarterly loss (compared to forecasts of $2.8 billion) which turned out to be quite palatable. Solid results from JP Morgan also offset a shocking $4.9 billion loss from Merrill Lynch.
Mortgage backers Freddie Mac and Fannie Mae sold their bonds successfully to raise capital. Freddie plans to inject more capital by selling up to $10 billion in new shares. With Freddie’s shares rising 10.2% and Fannie Mae soaring 22.6, it seems both companies may be able to avoid federal intervention. Tighter regulations are still necessary though.
The dollar firmed while oil prices fell Friday, marking a four-day drop of more than $16. Oil had retreated since Tuesday when Bernanke reported lower consumer demand from high gas prices and a government report showed an increase in oil, gasoline and natural gas inventories. Thawing relations between the U.S. and Iran also helped pushed oil below $130.
I am rather optimistic for next week’s mini bull run on the SGX , even though the economy is headed downwards. Positive earnings report from Wall Street are expected as the effects of high commodity prices and liquidity issues seem to be under control. That augers well for local companies too.
Another factor which have propelled financial stocks is the emergency ban on “naked” short-selling on Tuesday. Naked shorts (when an investor shorts a stock before actually borrowing it) are highly profitable in light of investors’ fears on beleaguered financial firms.
While we need shorts to temper exuberance, naked shorts are exploitative and harmful to the stock market. Viable companies may be put out of business on unfounded rumors.
The bear has been rampaging for weeks, time to take a break. Till tomorrow.