STI closed 2,329.08 for the week ended 29th May 09; the highest close for this year and an almost 60% rebound the March 08 low. Is it a bear rally or an emerging bull still relatively under debate among economists and analysts. The worse might be over from the recent economic data around the world but one thing for sure, the global economy is not out of the wood yet. US unemployment rate is still high and with GM looking to bankruptcy, the unemployment rate will only go up. To lower the unemployment rate within a short period of time is a tall order for the US Government. Another aspect is economists and analysts are looking for China to pull the rest of the world out of the slump. A big question still remain whether China can do it. China itself requires an annual GDP of 8% in order to sustain its own unemployment rate and avoid going into recession. So far, China 1Q09 GDP came in 6.1% and to get an annual rate of 8%, the remaining 3 quarters have to be outperformed and rebound strongly. The next worry is US Federal Reserve has printed lot of USD to save its economy for past months, the hugh influx of the USD will eventually lead to inflation and might hamper the recovery of the economy or potentially create another bubble some years down the road.
For 1Q earning most companies in particular the banks, they were able to exceed analysts' expectation but the question will remain in 2Q09 earnings. Will these companies able to perform better ? Will their earnings remain flat or will their earnings be worse than 1Q09. Perhaps this could be the key to unlock the answer of whether it is now a bear market rally or an emerging bull. If the companies are able to record better earnings in 2Q as compared with 1Q, high chance is an emerging bull. If the earnings still flattish, chances are the global economy probably will take a longer time to recover than expected. The worse case will be 2Q earnings come out worse than 1Q then current stock price level will not be able to sustain and a deep correction will kick in.
Investors too are caught in two minds; missing the boat or worry that current price level can't sustain. The coming 3 months will be critical as companies start to roll out their 2Q earnings. For long term investors, best way now is to invest strategively, that is slowly and spread out the purchase when there is any dip opportunity. Remember also reserve some cash on hand to cater for in case there will be a deep correction down the roads so as average down and pick up at cheaper price level of those quality stocks.
For short term traders, advice is still to stay cautious until a clearer picture can be seen from the companies 2Q earnings. As the price moves higher up, the risk also increases and any cut loss strategy will have to keep it tight so as not to get caught in a sudden deep correction if things turn out to be worse.
