Has the bull died with the stock market?
Since the beginning of the year, the US Dow Jones benchmark made a historical high of 26,616, late January and has since staged a decline. Initially, I was rather confident and predicted that the index would make another marginal high below 28,000 before the end of June. The reason being a final push before the equity market sinks into the ‘quicksand’ of a serial rate hike.
Ironically, the sudden and unexpected act of President Donald Trump in declaring a trade war against China and Europe has stoked fears among global investors. In Asia, stock markets have generally been falling due to the corrective whiplash triggered in the Chinese stocks.
In Malaysia, FKLI declined faster than the rest of Asian indexes as foreign investors leave the blue chips due to a resurgence in the ringgit’s weakness. In Europe, the tapering stimulus menace initiated by the European Central Bank and UK’s Brexit have instigated fears of dwindling exports.
After President Trump returned from a summit with North Korean Leader Kim Jong-un held in Singapore last month, he announced a new import tariff of US$50 billion against Chinese goods and US$20 billion against European automobiles. He might have wanted to orchestrate the rise of the dollar in-line with another rate hike on June 13. Unfortunately, the epilogue went sour as regional stocks and most commodities plunged in June.
Since we are projecting another two rate hikes before the year-end, the expectation of a recovery in Dow Jones benchmark may not summon extraordinary demand in the coming months. In fact, the sequential credit tightening for seventh time on June 13 may begin to reveal its claws very soon. What we are waiting to see is the ultimate effect after the ninth hike for this year!
To summarise, the bull is not dying out yet but the exhaustive trend has definitely put a lid on rising demand. We foresee the day when the bull’s horn ‘ducks’ and transitions to bearish sentiments which will coincide with the next crossover of the US 10Y Bond yield above three per cent. Technically, the upcoming rise above three per cent will mark the third attempt and most likely, it could trigger the beginning of a downpour pattern in the global stock markets.
Most market traders are anticipating the change of a big trend. Ultimately, they have no idea on which high rated fundamental indicator to follow and many also hesitate when the moment of truth could arrive. In such a high-pressured situation, risk control is always mandated. Pace your patience from now on.