Interest Rate Fears Weigh Heavily on Stocks, Nasdaq Fell into Correction

Weekly Wrap Content for the week of 3:

1. Week 3 major indexes performance;

2. Week 3 US sector indexes performance;

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

U.S

Stocks slumped into their 3^rd consecutive weekly loss over the holiday-shortened week. Rising interest rate fears and growth worries pushed the S&P 500 Index to its biggest decline in more than 14 months.  The Nasdaq Composite index slumped roughly 7.6%, its biggest weekly drop since the start of the pandemic. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Sentiment turned sour, as speculation the Fed will announce a 50-basis-point (0.50%) increase in the Fed funds rate at its Mar meeting, instead of the usual 25-basis-point in recent years. Market are pricing at least 100 basis points in 2022. 

2.    Latest housing market data were mixed. Housing starts and permits in Dec surprised to the upside, while existing home sales slumped over the month. Weekly jobless claims rose to 286k, the most since mid-Oct, the unexpected jump seemed to have the biggest impact on markets. 

3.    10-year Treasury yield hit 1.9% on Wed-its highest level since late 2019-but fell back sharply in the wake of Thur’s weaker-than-expected jobless claims report.

SPX sectors in play

All 11 SPX sectors closed under water this week, with Consumer Discretionary (XLY) and Technolgy(XLK) fell the most for the week-8.2% and 6.9% respectively, and also the worst sectors with decline of 11.8% and 11.2% YTD. 

Weakness in semiconductor shares weighed on technology stocks, while weakness in automakers and home improvement retailers dragged down the consumer discretionary sector. Declines in financial giants JPMorgan Chase and Goldman Sachs took a toll on financial services shares. A more than 20% decline in Netflix shares following its fourth-quarter earnings report contributed to the indexes’ losses on Friday. Refer to below sector indexes weekly performance table.

Technically, all three major indexes dropped below their 200DMAs- typically in bears' teritory.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

The Shanghai Composite Index (SSE weekly chart) edged up 0.1% for the week, as the government stepped up monetary easing measures and signaled additional support for the beleaguered property sector.

Last Monday, the People’s Bank of China (PBOC) unexpectedly reduced the interest rate on one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.85%, the central bank’s first reduction since April 2020.

In economic readings, China’s gross domestic product expanded at better-than-expected 4% in the fourth quarter of 2021, slowing from the third quarter’s 4.9% expansion pace. The data suggest worsening downward pressure, especially in consumption and property trends, though infrastructure investment showed some improvement.

In Hong Kong, the benchmark Hang Seng Index(.HSI weekly chart) continues its rebound into 4^th week, with weekly gain of 2.4%. The .HSI index closed at its two-month high, seemed unaffected by rout in the U.S stocks.

Singapore

STI index(STI weeklychart) rallied into 3^rd week, passed through multi-year high in 2021 peak of 3273.54 and 2020 peak of 3283.89 level. The index displayed remarkable resilience and defying losses across most major bourses, mainly driven by banking and financing stocks.

For the first three weeks of 2022, STI has continued its strong momentum built on since last year, rallied 5.4%. STI technical indicators appear firmly bullish, its price level trading above all major moving averages (20/50/200 daily MA). Going forward, we think any short-term pull-back to near its moving averages would provide good entry opportunities for bulls. STI’ near term target/resistance level at around 3380-3400 area.