Below is my personal outlook on the market following US Fed's hurried rate cut decision:
The US Fed decision has taken most people by surprise, although rumours have been circulating the morning before about a 0.75% rate cut. You don't need me to tell you how badly Asian markets have performed today. This kind of sell-down is very rational given what we have seen in the last few years of bull run and bubble forming. Furthermore US credit market practices should be punished. This is a healthy lesson for all.
Now how will the Fed cut save the market?
The effects are going to be pretty limited, this is nicely demonstrated by the falling stock prices everywhere despite the annoucement. It is very dificult to see how market sentiments are going to improve in the coming weeks. There are two fundamental ways to change investors perception: good government policies and solid business models backed by consistent positive earnings. Unfortunately, an emergency rate cut is neither here not there.
In fact, such emergency measure tells us that the market is indeed ailing and even the US Government now looks nervous. So common sense tells us that this is going to take a while before investors' sentiment return to (near) normal.
How long will this bearish (or bear) market going to last?
Investors need a good reason to return to the market. Right now, having cash under your pillow looks far sexier than to give it to the equity market. So, to return to the good old days, investors need to have data and signals that consumers are still spending and corporate results need to show good gains. Investors are going to be more risk-adverse and also more demanding. People will now want to see black-and-white evidence before they could be persuaded to part their money to the equity market.
Further write-downs from the big financial institutions are the biggest risk to market sentiment in the coming quarters. Stock prices are already pricing in a mild US recession. So if more write-downs are made and if US recession spreads elsewhere (esp. Asian markets), the whole 2008 will be a bear market year.
In this fast and furious age, one year is a lifetime.
So what do we do now?
The best decision now is obviously to wait. Market direction should be clearer after 1H 2008. And by clearer, it does not necessarily mean better.
Allan.
The US Fed decision has taken most people by surprise, although rumours have been circulating the morning before about a 0.75% rate cut. You don't need me to tell you how badly Asian markets have performed today. This kind of sell-down is very rational given what we have seen in the last few years of bull run and bubble forming. Furthermore US credit market practices should be punished. This is a healthy lesson for all.
Now how will the Fed cut save the market?
The effects are going to be pretty limited, this is nicely demonstrated by the falling stock prices everywhere despite the annoucement. It is very dificult to see how market sentiments are going to improve in the coming weeks. There are two fundamental ways to change investors perception: good government policies and solid business models backed by consistent positive earnings. Unfortunately, an emergency rate cut is neither here not there.
In fact, such emergency measure tells us that the market is indeed ailing and even the US Government now looks nervous. So common sense tells us that this is going to take a while before investors' sentiment return to (near) normal.
How long will this bearish (or bear) market going to last?
Investors need a good reason to return to the market. Right now, having cash under your pillow looks far sexier than to give it to the equity market. So, to return to the good old days, investors need to have data and signals that consumers are still spending and corporate results need to show good gains. Investors are going to be more risk-adverse and also more demanding. People will now want to see black-and-white evidence before they could be persuaded to part their money to the equity market.
Further write-downs from the big financial institutions are the biggest risk to market sentiment in the coming quarters. Stock prices are already pricing in a mild US recession. So if more write-downs are made and if US recession spreads elsewhere (esp. Asian markets), the whole 2008 will be a bear market year.
In this fast and furious age, one year is a lifetime.
So what do we do now?
The best decision now is obviously to wait. Market direction should be clearer after 1H 2008. And by clearer, it does not necessarily mean better.
No comments:
Post a Comment