Stocks sink ahead of Fed policy decision

Stocks fell for a second day following a big selloff on Wall Street ahead of a key Federal Reserve policy decision later in the week and on projections of slower corporate earnings growth this year.

The PSE index, the 30-company benchmark, tumbled 177 points, or 2.55 percent, to close at 6,793.25 Tuesday, as all six subsectors declined, with mining and oil showing the biggest loss.

The broader all-share index also lost 69 points, or 1.90 percent, to settle at 3,590.40, on a value turnover of P11.27 billion. Losers overwhelmed gainers, 147 to 50, while 27 issues were unchanged.

All ten most active stocks ended in the red, with PLDT Inc. going down 6.09 percent to P1,342.00 and DMCI Holdings Inc. dropping 5.98 percent to P11.00.

A leading online stock brokerage said that revenge spending, which boosted profits of many listed companies in 2022, would likely dissipate this year, leading to possible slowdown in corporate earnings growth.

COL Financial chief equity strategist April Lee-Tan said in a press briefing corporate earnings growth could slow down to 13 percent in 2023 from 26 percent in 2022.

Tan said that aside from the high-base effect, the threats of higher prices and interest rates could eventually hurt consumer spending growth.

She said while there was also pessimism in the market because of rising commodity prices last year, this was offset by revenge spending angle as people wanted to go out after having been deprived of mobility for two years.

“Potentially revenge spending will end this year. That is why we really need to address the issue of higher inflation,” Tan said.

COL Financial, however, expects the stock market index to reach 7,500 to 8,250 towards the end of this year’s trading. Tan said the market was anticipating the US Fed and the Bangko Sentral ng Pilipinas to start cutting rates which could lead to lower bond rates and weaker dollar.

Expectations the US would avoid a “hard landing” and foreign funds returning to emerging markets including the Philippines were expected to boost investor sentiments, she said.

“Philippines is seen to benefit from fund flows into emerging markets due to a weak dollar, relatively stronger fundamentals, underperformance or cheaper valuations, underinvestment by foreign investors and China’s reopening with expectations of more stimulus,” Tan said.

Tan said the local equities market remained attractive because of cheap valuations. She said most stocks were still trading below their 10-year average. However, there are also risks to market’s strong performance, particularly if the Fed would not cut rates, she said.

She said concerns about the US economy suffering from a hard landing and the Philippine economy not hitting growth targets this year amid higher inflation and interest rates would hurt market sentiments.