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As we approach the final two months of what has been a tumultuous year for financial markets, one must wistfully wonder if the traditional year-end equity market Santa rally is coming back in 2023.
Well, we live in hope.
Given the uncertainties overhanging the market – elevated inflation, higher interest rates, heightened geopolitical risks and slowing growth in key Western economies – the prognosis is not great.
Anyone hoping for a market recovery should look towards the middle of 2024.
Despite the key 10-year US Treasuries pulling back slightly towards the end of last week, this key benchmark remains just off its 5 per cent peaks.
This means investors are better off – at least for now – parking their funds in risk-free money market opportunities and deposits, rather than volatile equities.
On Wall Street, the Dow Jones Industrial Average closed at its lowest levels since March as it gave up another 2.14 per cent for the week to 32,417.59 on Friday.
Meanwhile, the S&P 500 had its worst month in 2023 as it broke below its 200-day moving average and joined the Nasdaq index in correction territory, sliding another 2.53 per cent last week to its Friday close at 4,117.37 points.
Disappointing results from several Big Tech companies like Meta took its toll on the Nasdaq, which retreated another 2.62 per cent for the week to 12,643.01 points.
In Singapore, the Straits Times Index (STI) continued to gyrate between its 2,970 support and 3,150 points upside resistance to end the week 0.5 per cent lower at 3,061.85 points.
The Singapore market benchmark index is down 4.8 per cent on the month. Meanwhile, the SPDR Gold Shares ETF is up 6.3 per cent in Singdollar terms.
Singapore Exchange data suggests S-Reits, banks and real estate plays saw some of the biggest institutional outflows last week, while industrials, telcos, technology and consumer cyclicals booked the most net institutional inflow.
Interestingly, five non-STI stocks – ComfortDelGro, UMS, AEM, Frencken and Golden Agri-Resources – seem to have found favour with investors in 2023, booking in almost $200 million in net institutional fund flows and delivering average total return (which includes dividends) of about 11.5 per cent for the 10 months to end-October.
Over in the United States, the latest numbers for the world’s biggest economy continued to confound, as gross domestic product expanded by 4.9 per cent in the third quarter (versus estimates of 4.5 per cent), boosted by strong consumer spending with real spending.
Meanwhile, core personal consumption expenditure (PCE), which the US Federal Reserve uses to measure inflation, edged 0.3 per cent higher in September.
On a year-on-year basis, the core PCE rose 3.7 per cent, which is still much higher than the Fed’s 2 per cent target.
All in all, it is a mixed picture for anyone trying to second guess what the Fed will do next. Despite rates remaining high, the US economy had its best showing in two years. And prices are not rising as sharply as feared.
Currently, the market is still betting that the US central bank will hold rates at its upcoming meeting this week and relook the matter in December.
The biggest concern for investors at the moment comes from geopolitics.
The conflicts in Ukraine and the impending war in the Middle East have the potential to send energy and commodity markets into a tizzy. A widening war in the Middle East could trigger oil sanctions, which could potentially push oil prices beyond US$100 per barrel – a prospect that would be disastrous for the already-fragile global economy.
The knock-on effects on corporate earnings – which are already under pressure from higher borrowing costs – could also be very painful.
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