'Thanksgiving rally' may be on the cards

Walmart employees at a store in Burbank, California. Black Friday, the day after Thanksgiving Day on Nov 23 this year, traditionally marks the start of the US holiday shopping season - a critical time for retailers.
Walmart employees at a store in Burbank, California. Black Friday, the day after Thanksgiving Day on Nov 23 this year, traditionally marks the start of the US holiday shopping season - a critical time for retailers.PHOTO: BLOOMBERG

US holiday promises strong retail boost, though slipping Wall Street indices still bear watching

"Revenge rebound" or a "Thanksgiving rally" could be a thing in the local bourse this week after the key Straits Times Index (STI) lost 1.1 per cent over the previous week - that is, if this year's persistent trend of a correction followed by a bullish trend is anything to go by.

That could, however, be challenged by Wall Street's outing last Friday with US key stock indices - the Dow Jones Industrial Average and the S&P 500 - having slipped and, with that, logging their second straight week of declines after a two-month stretch of gains fuelled by corporate earnings and upbeat macro data.

The Dow fell 0.4 per cent and the S&P 500 fell 0.3 per cent, while the Nasdaq Composite retreated 0.2 per cent last Friday.

The catch-up rally, in fact, has already begun in the Singapore market, with the STI snapping a five-day losing streak on Friday. Prior to the correction, the STI had risen by 1.23 per cent on the back of broad gains in regional markets.

There is reason for optimism this week, with Prudential Financial predicting that major US indices could hit record highs as long as the retail renaissance (going into the critical holiday shopping season) continues and the US Congress makes more progress on tax legislation.

"This week is 'Black Friday', the bumper sales day when American stores traditionally covered their costs and started making money on the year," it said.

United States President Donald Trump's tax cuts will continue to feature on investors' wish lists. As for oil prices, an upcoming decision by the Organisation of Petroleum Exporting Countries on Nov 30 on whether to extend production cuts and the continued production growth of shale in the US will be closely monitored.

SPENDING SPIKE

This week is 'Black Friday', the bumper sales day when US stores traditionally covered their costs and started making money on the year.

PRUDENTIAL FINANCIAL, which predicts that major US indices could hit record highs as long as the retail renaissance continues and the US Congress makes more progress on tax legislation.

DBS Research expects a rise in global demand, still lagging shale gas investment in the US, and uncertainties stemming from Saudi Arabia to be compelling factors to support oil prices in the short term. But DBS added that, given the prevalence of many moving parts, "price gyrations" could persist.

The week's data docket includes third-quarter gross domestic product numbers expected out of Singapore, Thailand, Germany and Britain, and key jobless and manufacturing data from the US amid a week shortened by the Thanksgiving holiday - US financial markets will be shut down on Thursday for the Thanksgiving Day holiday, with an early close for Friday.

Singapore's economy grew 4.6 per cent year on year over the third quarter, the fastest since the first quarter of 2014, said Moody's Analytics, adding that it expects little to no change in the final estimate.

US Federal Reserve chair Janet Yellen is due to speak at Stern Business School and minutes from the latest Federal Open Market Committee meeting will be released mid-week, with most pundits expecting a December rate hike.

The encouraging global macro backdrop has been a major soothing theme for investors this year and this is unlikely to change towards the year end.

Global economic strength seen so far this year shows little sign of abating, but it is hard to ignore the "incipient rise" in market volatility, said DBS in a weekly wrap. "To say the markets are on edge may be overstating the current dynamic."

Recent fundamentals look strong, with earnings from companies having been robust.

As the year comes to an end, there may also be further upside as leading indicators have begun to hint at a pickup in the capital expenditure cycle.

"But volatility may be here to stay nonetheless as a slowing China and some commodity-related uncertainty give bulls and bears room to tussle," the research house added.

A version of this article appeared in the print edition of The Straits Times on November 20, 2017, with the headline ''Thanksgiving rally' may be on the cards'. Print Edition | Subscribe