SINGAPORE – Markets, though resilient, continued to dance to the tune of inflation and interest rates.

Jolted by hotter-than-expected producer price index (PPI) data, Wall Street snapped a five-week winning streak last week.

The Dow Jones Industrial index slid 0.11 per cent to 38,627.99 points, while the broader based S&P 500 gave up 0.42 per cent for the week to 5,005.57 points. Meanwhile, the tech-heavy Nasdaq pulled back 1.34 per cent to 15,775.65 points.

In Singapore, a holiday-shortened week saw the Straits Times Index ending Feb 16 at 3,221.94, up 2.7 per cent on the week. This was the STI’s strongest week since the 3.2 per cent gain in the last week of 2023.

On the broader front, the biggest market-moving news of the past week was the higher-than-expected 0.3 per cent rise in the US January PPI, compared with the market forecast of 0.1 per cent. Excluding food and energy prices, core PPI rose 0.5 per cent, versus an expected 0.1 per cent.

Despite some nervousness in the wake of these numbers, the market’s uptrend is nearly into its fourth month now, having started around late October 2023. The global equities based on the MSCI World Index have risen by 20 per cent during this period.

Meanwhile, the Federal Reserve has pushed back on aggressive rate cut expectation over the past seven weeks and markets are now pricing in just three to four cuts by the US central bank in 2024, compared with seven to eight at the start of the year.

With close to US$6 trillion (S$8.08 trillion) sitting idle in US money market funds, there is clearly an abundance of liquidity that can provide markets with firepower in 2024.

Mr Vasu Menon, managing director for investment strategy at OCBC Bank, remains convinced that US interest rates will head south over the next three years, throwing up opportunities for investors.

“In our view, as evidence grows that inflationary pressures are abating, the Fed will probably start to gradually lower its Fed funds rate from June by 25 basis points (bps) and again in September and December,” he pointed out.

“We thus forecast the Fed funds rate to fall to 4.5-4.75 per cent by the end of 2024.

“The decline in the Fed’s key interest rate is likely to also cause the US 10-year Treasury yield to fall by almost 100 bps from the current levels to 3.25 per cent by the end of this year. This will augur well for equity and bond markets and even precious metals like gold which is priced in US dollars.”

But expect volatility.

The war in the Middle East is already starting to weigh on global supply chains as Yemen’s Houthis show no sign of stopping attacks on ships sailing via the Red Sea. Meanwhile, the war in Ukraine continues to roll on.

In the United States, the biggest factor to watch will be the November presidential election. There could be major policy changes coming if former president Donald Trump moves into the White House again.

That said, market experts remain generally constructive on the global investment outlook for the year ahead, but they advocate exposure to a diversified portfolio, especially given uncertainties around the heavy election calendar globally.

A recent Bank of America survey of some 200 fund managers found that two-thirds expect only a soft landing for the US economy. No global recession is expected. Most also expect US inflation to pull back to the Fed’s 2 per cent target later in 2024.

In Singapore, the week ahead will see more results hitting the market. On Feb 20, it will be Singapore Airlines’ turn to unveil its third-quarter earnings for the October-December 2023 period. On Feb 22, it will be UOB’s turn to unveil its fourth-quarter and full-year results.

But market players also need to pay attention to the numerous second-liners that are doing well, paying generous dividends, but remain grossly undervalued. I highlighted three last week, two of which subsequently posted incredibly good results.

Boat maker Grand Banks announced a maiden interim dividend of 0.5 cent after posting a remarkable 92 per cent rise in profit to $6.9 million. Analysts expect its full-year earnings to hit $14 million. The company had some $39 million cash, translating into net cash per share of 21.3 cents, an annualised price-earnings multiple of four times and an ex-cash price-earnings of just 1.2 times.

Crane operator Tiong Woon boosted its interim earnings by over 50 per cent to $11 million as its net margin expanded 3.4 per cent. The company’s net asset value (NAV) stood at $320.5 million, translating into an NAV per share of $1.30. This has prompted analysts to lift its target price to 90 cents, from 85 cents previously. The stock closed at 51 cents on Feb 16.

Straco Corporation will be posting its full-year results on Feb 29. In a filing on the local bourse on Feb 9, the company, which owns the Singapore Flyer and tourism assets in China, said it expects to report a substantial net profit for 2023 compared with losses the year before, due to higher revenues from the Singapore Flyer and its China attractions. This is a company with net cash of over $165 million at end-September 2023 and has paid dividends every year.

The bottom line is that good companies will do well over time, no matter how volatile the market happens to be. As businessman Warren Buffett put it, investing well is like watching the grass grow, not punting at the casino.

Meanwhile in Singapore, the Government’s Budget for 2024 brought cheer to markets and helped to boost stock prices on the local bourse on Feb 16.

The Government announced measures for households and businesses to cushion the higher cost of living and support domestic demand. Measures to support economic growth in the medium term were also announced. Overall, it was a balanced and prudent budget that is projected to swing back to a surplus in the fiscal year beginning April 2024 from an estimated budget deficit for the fiscal year ending March 2024.

But it remains to be seen if this will be sufficient to ignite a sustainable rally as the outlook for the local economy and stock markets is closely tied to the global economic and investment outlook.

Looking to the week ahead, markets will have quite a number of economic figures to digest, along with the minutes of the Fed’s January policy meeting.

The index of leading indicators for the US and numerous purchasing managers’ indexes for the euro zone and its member states, as well as for Japan, the United Kingdom and the US, are on the agenda this week. In addition, the important initial claims figures will be released in the US. The GfK consumer confidence index for the UK and the ifo business sentiment index for Germany are other key economic data on tap.