Dow Jones Rally By 331 points

The Straits Time Index was down 15.57 points to close at 2860.51 Tuesday, a relatively muted response (fortunately) amid regional markets turbulence.

The stock market desperately needs a stimulus and what better than to see Dow Jones rallying by 331 points, reversing 3 consecutive loss sessions. S&P 500 and Nasdaq were also up nearly 3%. Financial firms like AIG, Bank of America and Citigroup led gainers.

On the technology side, Cisco Systems reported their fiscal earnings after the close and revenue topped analysts’ forecasts. Cisco’s results are representative of the market’s demand for technology due to their global reach.

OIl prices dipped below $120 and look set to slide further, which spark strong buying activity on Dow Jones in early trading. However, volatility is still present pending Wednesday’s weekly energy inventory report.

Falling oil prices reflects positively on stocks because of cheaper gasoline prices. That would relieve inflation pressure and allow consumers to spend more on discretionary items, boosting economic activity and stocks.

Nevertheless, if oil prices tumble too drastically, it becomes a double-edged sword as it implies that the US economy is in a major recession as factories shut down and workers are retrenched.

The US alone can influence oil prices, as they remain the biggest consumer of oil in the world, yet the price of gas is less than half of Europe. This has encouraged huge wastage in terms of big vehicles, air-conditioning and heating.

When the US feels the pinch and cut back on fossil fuel usage, oil prices has to plummet. Just by changing our usual habits as a collective effort, a significant difference can be made to our environment. Hopefully, plans to conserve energy and develop alternative energies are not derailed by the falling oil prices.

The market was also lifted by the Federal Reserve plans to leave its key fed funds rate unchanged at 2%. The central bank said: “economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports,” and that it expects “moderate economic growth” over time.

The Fed is hawkish on inflation, which is good as they are committed to clamping down on rising commodity prices. Economic indicators show that the US is on a “steady” keel so that is an upbeat note for investors.

According to the Institute for Supply Management (a trade group of purchasing managers), US service-oriented businesses remain in contraction for July, but outperformed analysts’ forecast. Its reading of the service sector was 49.5, up from 48.2 in June, better than a prediction of 48.7.

I expect stocks on the SGX to rally today, given the strong performance on Wall Street but once again, look out for minefields. UOB gave me a pleasant surprise when they made the best out of the subprime crisis and a global credit squeeze, stunning analysts with growth in second quarter profits instead of a decline.

We must prepare for a third quarter slowdown though so any rally now must be seen in perspective. I believe investors’ sentiment will pick up again in October. But that is for another update. Till tomorrow.

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Filed under Alternative Energy, Banking, Economy, Inflation, Oil, Stocks

One Response to Dow Jones Rally By 331 points

  1. Your new wordpress theme looks good!

    Be well and prosper.

    Panzers last blog post..Finding out the roots for your own financial freedom

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