SINGAPORE - Several weeks ago, I suggested that markets would remain volatile as sentiment swings between fear and greed.
Sure enough, after a massive plunge last Monday over fears of Covid-19 resurgence and its more contagious Delta variant, markets bounced back by mid-week, fanned by optimism, opportunism and ample liquidity.
The benchmark Straits Times Index (STI) did a 2.6 percentage point flip between its Monday lows and Thursday highs, before closing little changed on the week with a 0.2 per cent gain to 3,157.05 points.
Over on Wall Street, the mainboard's Dow Jones index gained by over 1 per cent for the week to close at 35,061.55 points - the first time ever that it has breached 35,000 points.
This brings total gains for the Dow this year to 14 per cent.
Meanwhile, the S&P 500 index was up 2 per cent for the week, reaching a new record high at 4,411.79 points.
Strong technology sector results from the likes of Twitter and Snap hoisted the Nasdaq to a new record at 14,836.99 points.
All this came as the yield on the closely watched 10-year Treasury plumbed below 1.3 per cent.
The Singapore market has proven to be more resilient than expected despite the latest lockdown measures.
With last week's gains, the STI has outperformed most other Asian markets, with the exception of Taiwan's benchmark. It has also outperformed the MSCI Asia Pacific Index, which has fallen around 3 per cent this month.
Singapore's progress in vaccinating its people against Covid-19 is fanning the reflation theme here, say analysts. But that is not necessarily the case in the United States and Europe.
As UBS chief investment officer for Asia-Pacific Kelvin Tay noted, the spread of the Delta variant has led to a reassessment of the progress of recovery, and hence the reflation trade in some of these markets.
"However, the impact is more limited compared with previous waves as vaccination rates are generally higher, and emphasis has shifted to death and hospitalisation rates, which at the moment remain low," he said.
This week, markets will keep a close watch on the Federal Reserve policy meeting on Wednesday. The pace of the Fed's bond-buying programme will be in focus.
The US central bank could discuss how to balance the downside risks from the Delta variant with upside risks to inflation.
Fed chairman Jerome Powell will hold a press conference following the meeting. Discussions about tapering are likely to intensify after the meeting and press conference, and may cause some market volatility.
On the data front, the US preliminary second-quarter gross domestic product growth figure will be released later this week.
According to consensus estimates from Bloomberg, the quarter-on-quarter growth in the second quarter is likely to pick up to 8.5 per cent from the corresponding 6.4 per cent growth in the first quarter.
The US personal consumption expenditures deflator for last month - the inflation gauge that the Fed uses - will also be in focus at the end of the trading week and may affect market expectations about US monetary policy, especially if it shows inflation picking up significantly from the previous month.
Singapore's June Industrial Production report is due to be released today at 1pm.
Bloomberg consensus estimates are for a marginal increase from May, while increasing significantly year on year.
Singapore's second-quarter unemployment rate will also be released this week. Government policies to support the labour market throughout the pandemic, led by the Jobs Support Scheme, have seen the unemployment rate decline to 2.9 per cent during the first quarter, from its 3.5 per cent peak late last year.
Meanwhile, the US earnings season will gather pace this week.
So far, 87 per cent of companies that have reported results have exceeded market expectations.
Mr Vasu Menon, executive director for investment strategy at OCBC Wealth Management, warned investors to be prepared for more volatility once the economic and policy tailwinds abate in the next 12 to 18 months.
"Future stock market gains are likely to be lower compared with the past year as markets transition into a mid-cycle phase of the post-pandemic recovery," he said.
"Stock investors, therefore, need to be realistic with their expectations. The easy money has been made, but there is still money to be made, and it still makes sense for those with a medium-term horizon to stay invested.
"Unless investors foresee a US recession, which we do not, a bear market for global equities is unlikely."