The Dow Jones and S&P 500 were mostly unchanged, but the NASDAQ continued to close higher, hitting levels last reached in 2000. Investors are weighing up where we go from here given the all-time highs in US bourses.
Measure of caution
Looking at the S&P 500, talk of low valuation was the attraction for investors to enter the market when PE was at 12 in 2009. Today, 134% later and with the valuation close to 17, there is a measure of caution. Investors would like to see a fundamentals-driven marketplace. The concern has been the top-line contraction of companies and analysts preparing clients ahead of the earnings season in October, with expectations that revenue will be flat.
On the economic front the initial jobless claims were better than expected, with 309,000 versus the 330,000 expected, but the US Labour department is still working through the backlog of the two states that did not report. The highlight was the surprisingly strong numbers from the Philadelphia Fed’s business outlook index, which jumped to a March 2011 level of 22.3 from 9.3 in August.
There were some strong numbers with the employment index increasing from 3.5% to 10.3%, and new orders jumping from 5% to 21%. Home sales jumped to 5.48 million from 5.39 million in July as homeowners locked in lower mortgage rates, although this is expected to slow given the jump in the 30-year yield from the low of 3.4% in July to the current 3.8%.
In Asia, it’s a big day for RBI governor Raghuram Rajan as the central bank will review policy today. He is expected to leave the benchmark repurchase rate unchanged at 7.25%. Since coming into office, Mr Rajan has stabilised the sell-off in the rupee with traders unwinding their short positions. The rupee was in freefall, touching 68.8 on 28 August. It has recovered more than 10% with further recovery expected by many investors if Mr Rajan can balance growth without stoking inflation.
Next week in Asia, we can look forward to China’s flash HSBC manufacturing PMI (on 23 September). Given the recent expansionary data, the outlook for China’s growth has stabilised and there’s a prevailing sentiment that this will be maintained.
On the same day, Singapore’s August CPI is expected to have slightly increased to 2.1% from 1.9%. This will be followed by Japan’s CPI on 27 September.