Sunday, March 21, 2010

Straits Times Index Forecast Review

In my earlier post, I stated that I was of the opinion that 2010 was going to be an up a little year. On a year-to-date basis, the STI has been slightly higher than where it was at the end of 2009. With about 9 months left, I should be on track with my forecast, which has a 25% of getting wrong.

The bull run - not really a suckers' rally ain't it? - has been almost a 12 months old. Worrying will set in, especially with regards to sovereign debt issue in Europe and currency/trade wars between China and the US. I do not see them as problem as they have probably been discounted or priced in. The thing you should focus on, as a signal for buying opportunity, is a Fed Funds rate hike. While the US government has raised the discount rate, it has yet to do so for the Fed Funds.

Mindful that the American economy is still in a state of reflation or jobless recovery, I reckon that any moves to raise this crucial rate will come within the next 3-6 months, with 3 months being the most likely period. Once the market anticipates that the FOMC will move it up a few notch, the US market will fall.

Most of us are unable to ascertain the expectations or the magnitude of such a rate hike. Stay invested again is the boring but safe advice. The odds are still good for the long term investor. Bull markets last longer than bear markets meaning that there might be another 2 more years of staying in the marker. Having said that, try to build up your emergency funds as well as ammunition in case the stock market heads for another downward descent, for reasons that will inevitably escape us.

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