Rising Rates Weight on Stocks

  Summary of content for the week of  Feb 19:

1. Week 7 major indexes performance;

2. Week 7 US sector indexes performance;

3.Major indexes weekly charts of support and resistance levels;

3.Major indexes weekly charts of support and resistance levels;

U.S

U.S three major indexes finished the holiday-shortened week mixed and very near the flatline, with DJI index the only one closed positive. SPX and Nasdaq(COMP) hit fresh record highs but closed down by profit-taking, attributed to the upward move in interest rates. 

The 10-year Treasury yield of 1.34% on Friday close rebounded back to its level one year ago when pandemic outbreak. Despite the sharp rise recently, the rates remain historically low. Take a look at below 10-yr Treasury Rate(%)

Source: Bloomberg

Analysts opined the recent rise in interest rates that has been driven by higher expected inflation, and by potentially less Fed stimulus. Given that the rates remain historically low and ongoing negations over the coming fiscal-aid package, Fed's dovish stance to keep short term rates accommodative to economy recovery, the rising rates unlikely derail the favorable fundamental outlook. 

An increase in longer -term interest rates are unfavourable on fast-growing technology stocks, by raising the discount rate on future earnings. Technolgy(XLK) among the laggers in the SPX 11 sectors indexes as shown in below weekly sector indexes performance table. Conversely, the increase in rates favored bank shares by boosting lending margins and helped value shares outperformed growth stocks. Financials(XLF) are among top performing sector indexes for the week. Energy(XLE) was the best performing index as bad weather forced to shutdown the massive oil and gas infrastructure, reducing the oil supplies. 

China/HK

China SSE index rose 1.1% in just two-trading days, after reopened from 7-day long Chinese New Year holiday.  The HSI index in Hong Kong was the best performing index for the week, with 1.6% gain. Both SSE and HSI are in a bullish trend and expected to rebound further.

Singapore

STI index reversed down from its two-week up streak, closed at 2880 level where it had a bullish breakout seven-week ago, now becomes resistance-turn-support level technically. Expected the index will have limit downside with major support level at 2880-2800 going forward. Top pick DBS bank.