Markets hit new highs amid growing optimism

Wall Street indexes hit new highs amid optimism over the Covid-19 vaccine roll-out, fiscal stimulus packages and generally improving economic numbers.

Fears of a United States Federal Reserve tapering were put to rest when Fed chairman Jerome Powell said last Wednesday that despite the US unemployment rate having fallen to 6.3 per cent, the employment picture is "a long way" from where it needs to be.

Speaking to The Economic Club of New York, he said the actual unemployment rate is probably closer to 10 per cent, and the Fed needs to stay focused on its "broad and inclusive" employment goal (read: sustained accommodative monetary and fiscal policies needed).

Last week ended with the 30-stock Dow Jones index at a new peak of 31,458.4, while the broader S&P hit a record at 3,934.83.

Meanwhile, retail traders on Reddit "got high" on cannabis.

Pun aside, a Reddit subgroup called WallStreetBets sent out a call to action to buy cannabis stocks, sending Wall Street counters like Tilray, Canopy Growth, Aurora Cannabis and Aphria soaring last Wednesday. The "kick" came from the pending merger between Tilray and Aphria.

The Redditers, who took on short-selling funds over GameStop and others two weeks ago, and put the shine to silver the following week, will most likely remain a force in the market.

Singapore's Straits Times Index took its cue from Wall Street for most of last week, but ended almost unchanged for the week at 2,925.48 points last Thursday.

Second-liners attracted active interest, with the likes of InnoTek, Q&M, Thomson Medical, Jiutian and Oceanus in focus.

DBS Bank kicked off the lenders' fourth-quarter results season last Wednesday, reporting a net profit of $1.01 billion for the quarter ended Dec 31 last year, down 33 per cent from a year before, due to lower net interest margin and higher allowances.

This brings its net profit for the full year to $4.72 billion, representing a 26 per cent decline from a year ago.

OCBC Bank and UOB will announce their results on Feb 24 and 25 respectively.

Analysts generally see the three banks' profitability improving this year, helped by a sequential economic recovery. OCBC Investment Research raised its fair value on DBS to $29.50, reflecting a firmer recovery outlook ahead.

The big event of this week will be the Budget statement tomorrow. But given that the Budget has had little impact on trading sentiment before, except when policies had implications for specific sectors, it could be a non-event for the market.

Most analysts see the upcoming Budget as being focused on providing support for families and small and medium-sized enterprises, and job creation.

So, after soaring more than 35 per cent since last year, is the market frothy?

Mr Vasu Menon, executive director for investment strategy at OCBC, warns of volatility ahead.

"If you cast your mind back to 2020, amidst the bull market from March onwards, global equities corrected by 6 per cent to 8 per cent on three separate occasions. These corrections did not signal the end of the bull run, but rather intermittent breathers which were necessary."

Given the flush of liquidity, fiscal stimulus, vaccine roll-out and low interest rates, equities will remain the investment of choice for the foreseeable future.

While some segments like tech have run up sharply, other areas like financials, commodities, energy and even travel-hospitality-leisure counters remain cheap.

Any correction could be a buying opportunity for players waiting to get into the market. Retail participation is at record highs.

Happy investing during the Year of the Ox. Huat ah!