Stocks Retreat as Bond Yields Advance

Weekly Wrap Content for the week of 1:

1. Week 1 major indexes performance;

2. Week 1US sector indexes performance;

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

U.S

First week of 2022 begins with a bang. Stocks backed away from record highs at the start of the week as longer-term bond yields increased. Expectations for higher interest rates took a particular toll on growth stocks and the technology-heavy Nasdaq Composite—which suffered its biggest weekly decline in nearly a year—by increasing the implied discount on future earnings. Refer to major indexes’ weekly performance tables below.Key highlights for the week/outlook:

1.    Fed minutes suggest hawkish turn. U.S. 10-year Treasury yields increase to pandemic high of 1.8%. The Fed minutes revealed that policymakers had discussed faster and more aggressive rate hikes, with the first quarter-point hike in the official short-term rate coming as soon March. 

2.    The week’s omicron news seemed to have a mixed impact on markets. New lockdowns in Hong Kong, and U.S. case numbers set new records. Investors seemed reassured that hospitalizations, though rising, were apparently decoupling from reported cases and the number of deaths remained roughly stable. 

3.    Jobs data offer mixed signals as released on Friday. Monthly payrolls reports showed 199k jobs added, only about half of consensus expectations. On the other hand, unemployment rate fell to 3.9%, lower than the 4.2% expected.

SPX sectors in play

Among the 11 SPX major sectors, Technology(XLk) and health care(XLV) shares were particularly weak, while energy(XLE) shares outperformed as domestic oil prices pushed back toward USD 80 per barrel. Financials(XLF) were also strong. This rotation from growth to value stocks has been driven primarily by a sharp rise in yields. Refer to below sector indexes weekly performance table.

Technically, all three major indexes uptrend was well intact.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

The Shanghai Composite Index (SSE weekly chart) shed 1.7% amid ongoing turmoil in the property sector and the U.S. Federal Reserve’s hawkish tilt. The Caixin Manufacturing PMI rose to a higher-than-expected 50.9 in December, up from 49.9 in November.

Further trouble in property sector.  China’s cash-strapped property developers, which are grappling with an unprecedented liquidity squeeze due to a housing slump and high debt levels, continued to make headlines.

In Hong Kong, the benchmark Hang Seng Index(.HSI weekly chart) rebounded 0.41% this week, revised from its selloff earlier in the week, helped by a rebound in tech and property shares. The policy research office of the National Development and Reform Commission said in the official People’s Daily that China should pay more attention to stabilising growth.

Singapore

STI index(STI weeklychart) closed with strong start in first week of 2022, it’s the best outperformed index with 2.61% gains. Banks and financials lifted up the index. In coming weeks, the rapidly increased Omicron cases locally might affect market sentiment.