STOCKS may decline this week due to profit taking following their five-day rally and as investors wait for more leads ahead of the US Federal Reserve’s policy review this month.

The bellwether Philippine Stock Exchange index (PSEi) rose by 46.30 points or 0.7% to 6,624.79 on Friday, while the broader all shares index went down by 18.75 points or 0.53% to close at 3,515.81.

Week on week, the PSEi gained 245.76 points or 3.85% from its close of 6,379.03 on July 7.

“While persistent selling pressure tempered gains made at the start of the week, market sentiment took a sharp upturn starting mid-week as the faster-than-expected easing in US consumer and producer price indices raised hopes that the [US Federal Reserve] will deliver its final rate hike this month,” China Bank Securities Corp. Research Associate Lance U. Soledad said in an e-mail.

US consumer prices rose in June as headline and core inflation continue to subside, but probably not fast enough to dissuade the Federal Reserve from resuming raising interest rates this month, Reuters reported.

In the 12 months through June, the consumer price index advanced 3%, making the smallest year-on-year increase since March 2021 and followed a 4% rise in May.

Meanwhile, the US producer price index (PPI) for final demand edged up by 0.1% in May. This was revised to show the PPI falling 0.4% instead of the previously reported 0.3%.

In the 12 months through June, the PPI gained 0.1%. This was the smallest year-on-year rise since August 2020 and followed a 0.9% rise in May.

The Fed will hold its next policy meeting on July 25-26.

It hiked its target interest rate by 500 basis points to a range between 5% and 5.25% before pausing its tightening cycle in June.

For this week, analysts expect the PSEi to drop as investors pocket their gains from the market’s recent rally.

“Considering the steep gains made over the past three sessions, we think profit taking may initially ensue [this] week. Offshore market movements may continue to influence local price action, especially price action relating to the Fed’s future policy rate trajectory,” Mr. Soledad said. 

“The market may test the validity of its breach of the 6,600 level. Given the market’s rally [last] week, we may see episodes of decline [this] week driven by profit taking,” Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco added in a Viber message.

Mr. Tantiangco said other trading drivers for the week include the expected release of remittances and balance of payments data.

For this week, he placed the PSEi’s support at 6,600 and resistance at 6,800, while online brokerage firm put support and resistance at 6,500 and 6,800, respectively. — A.H. Halili with Reuters