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More market volatility expected ahead

It was another volatile week for US equity markets as fears of potential inflation, stubbornly high US joblessness and an uneven recovery clashed with hopes of an accelerated vaccine roll-out, strong retail sales and more fiscal stimulus.

Tech stocks retreated amid concerns that many tech names are trading at nose-bleed-level valuations.

Meanwhile, a deep freeze rolling through Texas and the central United States has knocked out power, wreaked havoc on oil and gas production, slowed the vaccine roll-out and stirred up fears of economic fallout.

The Dow Jones index ended the holiday-shortened week at 31,494, down slightly from its record a couple of days earlier at 31,613.02, while the broader S&P index closed at 3,906.71, down from its peak at 3,934.83. The tech-heavy Nasdaq bore the brunt of the slide to end at 13,874.46 for the week, down from 14,162.87 earlier in the week.

In Singapore, the Budget statement had little impact on market sentiment, with the Straits Times Index taking its cue from Wall Street to end at 2,880.64 points, down 44.84 points for the week.

Much of the interest continued to be on rotational play on second-liners.

Earnings and recovery are proving to be a key driver of performance, with Thomson Medical gaining 27.9 per cent last week after reporting net profit of $9.7 million for its first half. Sri Trang Agro-Industry gained 41 per cent after chalking up 9.5 billion baht (S$420 million) in full-year profit. Meanwhile, Oceanus remained in the spotlight as it ended at a 52-week high at 7.5 cents.

There was a sigh of relief that the Budget did not have the widely anticipated property cooling measures. However, analysts point out that such measures have often come “off-budget”. Any such “cooling” measures will hit the property and banking stocks severely.

OCBC Bank and UOB will announce their results on Feb 24 and 25 respectively. Both are expected to report lower profit growth, no thanks to a squeeze on net interest margins.

Going forward, expect a continuation of the pattern of rotational plays focused on situational stocks, especially second-liners and penny plays.

The local market will take its cue from the US, which in turn will react to the huge data dump coming this week. These include home sales, GDP, durable goods orders, inflation and others. Expect more market volatility ahead.

If you have conviction in your portfolio, remain invested. A study released last week by the UBC Sauder School of Business found that those who try to time the market are not only getting lower returns, but are assuming more risk as well. Rather, investors who buy and hold tend to rake in higher returns, according to the study titled The Volatility Of Stock Investor Returns.

This week will be one of the biggest earnings weeks for the year on the Singapore Exchange. Besides the two banks, the likes of Wilmar, Sembcorp Industries, CapitaLand, Venture, UOL Group and City Developments will also be reporting results.

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