Weak Quarterly Earnings, Confidence Crisis Send Stock Prices Lower

(AMBROSE OMORDION) Market Update for week ended Feb 10 and Outlook for Feb 13
The major indices of the market for the week were significantly lower over lingering concern by traders and investors about the unimpressive quarterly earnings reports of companies that made available recently to the investing community.
Add this to the confidence crisis in the whole system that is awash with negative macro-economic indicators and have continued to deteriorate on a daily bases, as investors look forward to the blueprint for economic recovery promised by the Federal Government, for direction. The Presidency assures that the document would be release before month end, after 19 months of a seeming lack of economic direction and a concoction of uncoordinated policies on the part of the fiscal and monetary authorities which have contributed to the continued contraction of nation output.
Meanwhile, the composite index NSEASI shed 462.51 points to close at 25,340.02 points, from an opening figure of 25,802.54 points, representing 1.79% decline on above average volume traded for the period to continue its bearish trend. Buying volume of total transactions for the week was 22%, while selling position was 78%. Similarly, market capitalisation for the period closed lower at N8.77 trillion from an opening value of N8.90 trillion representing 1.38% depreciation in value, with the market volatility that started the year persisting.
Despite the volatility in the market, the peak of 2016 full year earnings reporting draws closer for discerning investors and traders to know where to pitch their tent.
Last week’s mixed performance produced an advancers table that was dominated by a mix of low and high cap stocks. The presence of large cap stocks was due to dividend positioning while small cap stocks were for their low price attraction.
Depreciation of equities price last week pushed the NSEASI’s year-to-date negative position to 5.71%, just as capitalisation adjusted up for the same period to a loss of N477.12 billion.
Market breadth for the week was weak and negative as the numbers of decliners outweigh advancers in the ratio of 38:19 on a negative sentiment.
Stock markets around the world were up during the week as US market indicators closed higher on the back of government’s promise to implement broad tax cuts and other policy that will enhance businesses in the economy. There were also strong earnings that supported valuation of equities as the financial sector remains the largest beneficiaries of the regulatory cutbacks, while the energy sector received a boost from the rising crude oil price that has equally impacted positively on their earnings. The impressive earnings hitting the market had pushed equities to new all-time highs with the DOW-Jones Industrial Average remaining above 20,000.
Japanese Nikkei, Germany‘s DAX and Britain’s FTSE 100 for the period closed higher, as Europe continued keeping pace to outperform the U.S economy with valuations that were much more reasonable by many measures.
In Asia, Bank of Japan projected stronger than expected growth over the coming quarters due to the rebounding global economy that made the central bank keep its policy on hold for now.
Back home, the NSE All Share Index opened the week, at a loss position of 0.48%, which continued on the second trading day, when it shed 0.84%, before a reversal at the midweek’s trading session when it gained 0.05%. This was however short-lived, as Thursday closed with a loss of 0.58%, before recovering on the week’s final trading day when it closed higher at 0.07% to bring the week’s loss to 1.79%.
The NSEASI and all sectoral indices for the period were lower, except the NSE Banking and NSE Insurance indices that were up by 0.44% and 0.90% respectively, whereas the NSE ASem closed flat. The closure of the financial service sector in green is a reflection of investors toast for service companies stocks.
Market transaction levels for the week, measured by aggregate volume was down by 8.70%, while value of trades for same period was flat at N8.03 billion. This was in contrast to the closing levels of previous week. In the week under review also, a total of 1.05 billion shares valued at N8.03 billion were traded in 13,586 deals, compared with 1.15 billion shares worth N8.03 billion, exchanged in 12,783 deals in the previous week.
During the week also, Caverton and Beta Glass led the advancers’ table with 12.5% and 10.23% respectively, while the flip side was topped by UACN Property and PZ Cussons, which suffered 23.79% and 18.46% decline respectively.
In the course of the week, Jaiz Bank was listed by way of introduction at N1.25 each, thereby boosting the market capitalisation for the week.

Market Outlook
The market is likely to experience mixed performance again this week as the confidence problem continues to weigh in on the market.
Also, this week, the market expects inflation data from the National Bureau of Statistics (NBS), ahead of more 2016 full-year earnings reports that will usher in the peak of the earnings season.
However, in our opinion, the volatility in the market may have caused some stocks to trade at valuations lower than their estimated fair values, after considering fundamentals.

Economic data and earnings reports are expected to be few this week.
Again, the time to combine technical and fundamental analysis for your trading decisions is now, to enable you know the support and the resistance levels.
Train yourself and study to know the new approach to adopt at this point and going forward.
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Aiico, Total, Fcmb, Presco, Zenith Bank, UBA, and FO

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