Wall Street’s sharp rebound overnight saw the Dow Jones Index advancing 1,086 points, or 4.98%, and crude oil prices registering a 10% intraday gain.

Lack of macro data and fundamental updates, animal spirit and short-covering activities are probably the main push factors behind this rally. Drastic sell-off in US equities since October has sent the valuation of broad based indices S&P 500 close to four-year low at 16 times P/E, comparing to average 20 times P/E seen in early 2018.

In the short term, US markets have probably over-reacted on a bearish perspective of growth and uncertainties, and cheaper valuation created room for a technical rebound. The sustainability of this rally, however, remained questionable due to mounting concerns over economic growth next year and the outlook remains cloudy on many political and economic uncertainties over trade war, Brexit, US government shut down and continuous rate hike by the Federal Reserve that will slowly drain market liquidity.

Asian markets have demonstrated resilience against US market sell-off post-Christmas trading. Nikkei 225 index has rebounded 0.9% yesterday and recorded a 3% gain this morning. Singapore’s STI, previously adversely impacted by falling crude oil prices, is enjoying a relief rebound this morning, up 1.4%. Offshore & marine, banks and technology shares are doing the heavy lifting in benchmark index STI.

For Asian markets, downside is cushioned by relatively low valuation and those markets have outperformed US for the last three months. The upside, however, is capped by trade uncertainties and soften fundamental outlook, as a string of missing manufacturing PMIs from China and European countries recently have painted a tepid outlook of global demand into next year.

S&P 500 Index - Cash

By Margaret Yang in Singapore

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