Back then, even our downgraded target seemed like a pipe dream as the index was stuck in the doldrums around 6,600 and the Monetary Board was still undecided when, or if, they would start cutting rates. Most importantly, most stock market investors were waiting for a chance to sell.
Cut to our first column here on InsiderPH on June 11 and we were trying to convince readers to buy the dips.
Sharing that article on my personal Facebook account earned a few “haha” reactions, and the index proceeded to lose more than 100 points the following week.
That drop proved to be the year’s low and now, just a little over three months later, we are testing new 52-week highs and our year-end target is but a stone’s throw away.
Most importantly, despite the index jumping 16.5 percent over the span of three months, most stock market investors are still waiting for a chance to buy.
What changed since then, and is this really the start of a new bull market run?
The most obvious reason would be that the BSP has finally cut interest rates. It was a measly 25 basis point (bp) cut, but the symbolic pivot from tight monetary policies is what matters.
It was also well-telegraphed that this is just the first of many rate cuts to come, and that the goal is to return to a neutral rate of somewhere between 3.5 and 4 percent.
The less obvious reason is that after years of pummeling stock prices to new lows, most of the sellers are finally gone.
Even the foreign investors that have sold down our market in the past few years have eased up on the selling, and year-to-date cumulative net foreign selling is just a little over half of where it was back in June.
We can throw numbers around, but in the end, the stock market is all about market psychology.
Sure, numbers have a lot to do with it, but these numbers are subject to interpretation by humans and humans are driven by emotion. As such, the movement of the market is the result of the collective decisions of thousands of unrelated individuals.
Right now, the overarching emotion seems to be one of optimism, and the same numbers trigger different decisions against this backdrop.
Three months ago, a P/E ratio of 15.5 times was considered too high because the index was trading at 11.1 times P/E. Now, that same 15.5 times P/E ratio is suddenly very attractive because it is much lower than the stock’s five-year average P/E of 23.3 times.
The recent rally is not quite a broad-based one, the mythical “rising tide that lifts all boats,” but we are seeing a constant rotation from outperformers to underperformers and back again. People are no longer selling to exit the market, but rather, to enter into new positions.
The gears are turning again, and the change in sentiment is evident even if we take off our rose-tinted glasses. After four years of sideways movement, we think the market is finally ready to embark on the next bull run.