Global markets rally after rate cut, but risks lurk in the background

US election, geopolitical tensions among issues investors may have to contend with

- Ven Sreenivasan

Global markets have rallied on the back of optimism that the US Federal Reserve's bigger than anticipated rate cut of half a percentage point will engineer a soft landing for the world's largest economy.

Historically, stock markets have performed well when the Fed cuts rates, provided the US economy was not in recession.

This seems to be panning out once again, judging from last week's performance.

Although the week ended on a cautious note, with the Dow Jones Industrial Average and S&P 500 pulling back from Sept 19's record peaks, the upside is likely to remain intact as funds start seeking higher return in risk assets as falling interest rates diminish gains from money market deposits.

The Dow Jones on Sept 19 closed above the 42,000-point level for the first time following the Fed's 50 basis point cut, and ended the week with a net 1.62 per cent gain at 42,063.36.

The broader S&P 500 pulled back slightly from its Sept 19 record to close at 5,702.55 points, for a 1.36 per cent gain. The tech-heavy Nasdaq gained 1.49 per cent last week to 17,948.32 points.

In Singapore, the Straits Times Index raced to a six-year high at 3,636.21 by mid-week before closing on Sept 20 at 3,624.76 points, for a net 1.7 per cent gain on the back of some $900 million in turnover on Sept 20 due to a FTSE rebalancing.

Top index performers here were Keppel (up 5.6 per cent), DFI Retail Group (up 5.5 per cent) and Seatrium (up 5.5 per cent). S-Reits, or Singapore real estate investment trusts, which are generally seen as the biggest beneficiaries of a fall in interest rates, underperformed somewhat.

Seatrium alone has gained some 20 per cent in the last three weeks. And, despite signs of falling interest rates, Singapore bank stocks have largely rallied.