Where is STI heading?

On 21 September 2009, my blog post stated that the Straits Times Index (STI) rose faster than Dow Jones Industrial Average (Dow) in the 6 months to September, but both were about 30% off the peak in October 2007 before the US sub-prime mortgage problems arose.

Dow Jones Industrial Average

9 October 2007                  14,164

9 March 2009                      6,547

18 September 2009           9,820

 

Dow had increased 50% from March 9 lows but was 30.6% lower than the peak on 9 October 2007.

 

Straits Times Index

9 October 2007                  3,865

9 March 2009                      1,456

18 September 2009           2,647

 

STI had increased 81% from March 9 lows but was 31.5% lower than the peak on 9 October 2007.

 

Since then, Dow rose to 10,023 points on 6 November 2009 which is now 29% off the peak of 9 October 2007. In the case of STI, 6 November 2009 closing was 2,658 points which was just marginally higher than 2,647 reached on 18 September 2009. STI has not been able to break the resistance level of 2,700 points decisively.

In the case of Dow, its performance was boosted by the turnaround to economic growth of the US in the third quarter. For the first time since recession started in December 2007, her economy grew 3.5 per cent annual rate in the third quarter ended September 2009.

Because the economic recovery is still at an early stage and the domestic consumption of US has yet to recover to pre-crisis level, Dow and STI will not close the approximately 30% gap between the current levels of the indices and the pre-crisis peaks significantly. The US has still to tackle her unemployment problem which was now at 10.2% for October. This is the highest rate since 1983. This will take some time for 7.3 million unemployed to gain employment.

Written on 11/8/2009 8:47 PM

 

Copyright © 2009, the author known as LKT in Singapore.

 

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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