Rate Cut, Financial Expectation & Window Dressing

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Oct 02 2007
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Level 14,000 could be the biggest boulder that Dow Jones needs to move if investors wish to celebrate a truly bull-run. Wall Street began the fourth quarter with a huge rally on Monday when it crossed over it. But just like how Dow did it in mid-July when it surpassed its closing back then to 14,000.41, the time is too early to predict if this round would be any different.

Nevertheless there were cheers everywhere when the important Dow rose 191.92, or 1.38 percent, to close at 14,087.55. If you had monitored the movement of the index, you would see it was a stable movement the whole day, no more zig-zag of uncertainties. So, what could be the reasons or excuses for such optimism?

  • Dow breached 14000 pointsFirst of all, the latest economic data released by the Institute for Supply Management indicated that the September’s manufacturing sector grew at a slower pace in 6-months at 52.0, below forecasted 52.5. Hence investors are getting more confident there is going to be an October rate cut.
  • Secondly, while Citigroup and Switzerland’s UBS AG issued third-quarter profit warnings, it nevertheless indicated the current period might see a return to normal earnings levels. Citi Chief Executive Charles Prince said that he expects profit to “return to a more normal earnings environment” during the fourth quarter and this is perhaps the most important indicators from a financial institution considering Citigroup has not release any public information before as to the extent of the damages due to subprime problem. UBS, the largest Swiss bank and Credit Suisse Group similar statements help the situation as well.
  • Windows Dressing & Holiday SeasonThirdly, with the expectation that the housing crisis could be a thing of the past, investors are more willing to commit and ready for the “window dressing” which is just two to three months away. Furthermore holiday season could be the catalyst to speed up people’s confidence that the good time is here again. Sales are expected to pick up and if the promotional activities are anything to go by, soon it’ll be business as usual.

And boy, have you seen how Apple Inc.’s (Nasdaq: AAPL, stock) and oil-related stocks soared on Monday’s trading? But none of the above beats the elegant performance of Google Inc. (Nasdaq: GOOG, stock) stock which jumped US$15.28 or 2.7% to US$582.55 per share. Could Google’s stock price breach the US$600.00 per share before the end of the year?

The rest of the regional stocks markets are expected to perform well taking the cue from Dow’s 14,000 cross-over. Already Malaysia’s Kuala Lumpur Stock Exchange is up 17 points to 1,364.33 in the morning session, not too far away from 1,500 points and definitely very near to the excited 1,400 points.

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