Stocks to take cues from Fed meeting

While the local stock market is seen to be consolidating, it will take its cue from the outcome of the US Federal Reserve’s first meeting of the year which will be held this year.

“The local market has been moving sideways within the 7,000 - 7,100 resistance range as it is having a hard time getting past the said zone,” said Philstocks Financial Research Manager Japhet Tantiangco.

He added that, “Advancing further has been difficult amid lingering macroeconomic concerns from inflation to interest rates to external headwinds. Adding to this is the lack of catalysts that would support our economic outlook.”

Tantiangco noted that the local market is expected to take cues from the Federal Reserve’s first policy meeting of the year this week.

In particular, investors are expected to watch out for the Fed’s policy move as well as its outlook on its policy. An aggressive increase in rates and a hawkish outlook may put downward pressure on the bourse.

“While the positive surprise in GDP for the fourth quarter points to a robust holiday spending season, this could also imply some surprise inflation that has crept in and shrugged off the Fed's strong rate hikes in the second half of 2022, and therefore push the probability for a 50bps hike instead of the consensus 25bps,” said

It added that, “This oscillation is likely going to keep prices in risk assets range-bound until after the rate decision; the one positive takeaway from higher output in 40 is that activity may have been understated given the mad acceleration in cost of capital, which may reflect in earnings bear in cyclicals.”

Tantiangco said investors may also look towards the S&P Global Philippines Manufacturing PMI this week for clues on the local economy’s health.

2TradeAsia said “upcoming consumer expenditure and factory data releases should complete the validation for pundits, ahead of the US Fed's meeting.”

“While (last) week's mini consolidation appears to be a plateauing after several weeks of bullish energy, the narrowing trading range should he healthy for the larger uptrend to gather more steam, pending stronger catalysts later in the first quarter such as fourth quarterearnings starting mid-February,” the brokerage said.

It concluded that, “That being said, expect some selling pressure during intraday rallies as weak hands will take this window to cash out; amid broader market indecisions stay incisive.”

Based on recent developments, particularly the approval of a rate hike by its regulator, Abacus Securities Corporation has upgraded Manila Water Company to one of its top stock picks.

“(MWC) got a much bigger tariff hike which prompted us to add it to our top picks this year,” the brokerage said.

From only 22 percent in late 2019, the percentage of BUY ratings on MWC is currently 89 percent, matching the highest more than a decade ago. It also has its best ever consensus rating on Bloomberg at 4.78.

Meanwhile, consensus earnings per share for 2023 has surged more than 60 percent in the last two months as analysts plugged in the new rates.

“Beyond the upgrades, the regulatory overhang has vanished and management may be in a position to boost dividends as early as this year. We therefore believe the stock deserves to trade at a much higher level,” said Abacus adding that the stock is currently undervalued.

Meanwhile, Abacus advises investors to buy or add shares of SP New Energy Corporation, especially on weakness as it will be a pivotal year for the company.

The brokerage said SPNEC’s asset for share swap with its parent company is seen to be approved soon and this will pave the way for more private placements of its shares as the company seeks to broaden its public float to 20 percent.