Stocks Close Higher Even as Geopolitical Concerns Remain

Weekly Wrap Content for the week of Feb 25:

1. Week 8 major indexes performance;

2. Week 8 US sector indexes performance;

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

U.S

For the week ended Feb 25, U.S. major indexes closed mostly higher after a holiday-shortened week of historic volatility sparked by Russia’s invasion of Ukraine. On Thursday, the Nasdaq Composite Index swung by 6.8%, the largest intraday range since the World Health Organization declared the start of the coronavirus pandemic in March 2020. The volatility index VIX hit high of 37.79 on Thursday then retreated to close at 27.59 by Friday. As one example of the volatility, Tesla added USD 100 billion to its market capitalization over the course of the day on Thursday but declined roughly 5.5% over the week as a whole. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Growth picking up after omicron lull. IHS Markit’s flash PMI for February revealed that the U.S. manufacturing and service sectors were growing at a faster pace following an omicron-related lull in January. 

2.    Opportunities for stocks. Based on Morningstar data, since 1971 there have been 18 corrections without recession, with an average decline of 14.5%. Historically, these sizable market pullbacks that took place within the confines of a bull market have been good times to add equities, with stocks rising 17% six months after and 23% a year later. 

3.    The heightened geopolitical, inflationary and monetary-policy uncertainties are likely to keep volatility elevated for longer. Because the Fed will be embarking on a series of rate hikes and shrinking its balance sheet at the same time, the market recovery might not be as swift.

SPX sectors in play

Eight out of 11 SPX sectors closed positive this week. Health Care(XLV) stocks were top performer, Communication Services(XLC) also strong as supported by resilience in Internet giants Alphabet (the parent company of Google) and Meta Platforms (the parent company of Facebook). Refer to below sector indexes weekly performance table.

Technically, all the three indexes are still trading below their 200dma (usually as an indicator for the border of bullish/bearish markets) despite last two days rebound. The indexes are still trading below their short-term downtrend lines respectively. It remains to see in coming week(s) if stocks can continue rebound to break above the downtrend line.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Markets in China recorded a weekly loss as the Ukraine conflict depressed risk sentiment. The Shanghai Composite Index(SSE weekly chart) dropped 1.13%.

The People’s Bank of China’s (PBOC) decision to keep interest rates steady also dampened buying sentiment. The central bank left the one-year and five-year loan prime rates unchanged, surprising some experts who had forecast a reduction in the benchmark lending rate.

Hong Kong stocks suffered the biggest weekly sell-off since the depth of Covid-19 pandemic two years ago, as risk aversion stoked by the Russia-Ukraine conflict and corporate earnings woes weighed on markets. The benchmark Hang Seng Index (.HSI weeklychart) slumped 6.4%  this week while corporate earnings disappoint. Alibaba traded near record low after a report card showing weak revenue growth and deeper than expected drop in earnings last quarter.

Singapore

STI index (STI weeklychart) slumped 6.4% this week, retreated after recorded more than 10% return this year. Weekly uptrend still intact.

Russia and Rate Worries Push Stocks Lower

 Weekly Wrap Content for the week of Feb 18:

1. Week 7 major indexes performance;

2. Week 7 US sector indexes performance;

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

U.S

For the week ended Feb 18, U.S. equities finished lower ahead of the long holiday weekend. All the three major indexes suffered their second consecutive week of declines as worries over a Russian invasion of Ukraine and high inflation weighed on sentiment. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Conflicting signals on whether Russian troops were preparing to cross the border with Ukraine appeared to whipsaw markets throughout the week. With the Russia denies any attack on Ukraine but the U.S said invasion was “imminent”. 

2.    The Fed minutes for January meeting were relatively benign, which provided some relief to markets. By Friday afternoon, futures markets were pricing in an almost 80% probability of only a quarter-point hike in March, according to CME Group data. The probability of a 50 basis point hike in rates has decreased due to Fed minutes being released.

SPX sectors in play

Only one out of 11 SPX sectors closed positive this week. The typically defensive Consumer Staples(XLP) sector outperformed, helped by gains in Walmart and Procter & Gamble. A steep decline in Meta Platforms (Facebook) weighed heavily on the Communication Services sector(XLC), while Energy( XLE) experienced profit-taking for the week, nonetheless it’s still by far the outperformer this year currently. Refer to below sector indexes weekly performance table.

Technically, all the three indexes dropped back to just above their recent low area, DJI immediate support at 34000 level; SPX immediate support at 4300 level and the weakest among the three Nasdaq immediate support at 13000 level.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Chinese markets rose as supportive comments from government officials and lower-than-expected inflation data increased investors’ risk appetite. For the week, the Shanghai Composite Index(SSE weekly chart) added 0.8%.

In a State Council meeting, China’s Premier Li Keqiang reportedly pledged that Beijing would swiftly roll out a slew of measures to provide stronger support to the economy, parts of which are still suffering from the effects of the coronavirus pandemic. Separately, China’s top finance minister vowed to further cut corporate tax rates, strengthen targeted fiscal spending, and tighten fiscal discipline. Finally, the head of the People’s Bank of China (PBOC) said that the central bank would maintain supportive monetary policy this year.

In Hong Kong, the benchmark Hang Seng Index (.HSI weekly chart) slumped after 2-week rebound, dragged by the tech shares, after China’s regulators proposed measures that would require online food delivery platforms to reduce fees for restaurants. Food-delivery giant Meituan slumping 17.47% this week as the biggest loser on the Hang Seng.

Singapore

STI index (STI weeklychart) stalled this week, took a breather after two-week rally. Except three local banks, aviation and tourism, defensive industrials and palm oil related stocks outperformed.

Inflation Hits Highest Level in Four Decades

 Weekly Wrap Content for the week of Feb 11:

1. Week 6 major indexes performance;

2. Week 6 US sector indexes performance;

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

U.S

For the week ended Feb 11, all three major indexes ended the week lower, after previous two-week up streak. The technology-heavy Nasdaq Composite fared worst and ended the week down roughly 15% from its recent peak, still in correction territory. The tug of war between healthy earnings growth and fears over monetary tightening continued to dominate sentiment. Warnings from U.S. officials that a Russian invasion of Ukraine might be imminent may have also contributed to a late-week sell-off. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    U.S Consumer Price Index(CPI) hits 40-year high. January’s inflation data released on Thursday rose to 7.5% from a year ago, exceeding the 7.3% estimate and making the largest gain since Feb 1982, triggering an immediate market reaction in both stocks and bonds. 

2.    Investors price in half-point(0.5%) rate increase in March. With St. Louis Fed President James Bullard expressing his support for raising rates by 1% by July, the 10-year U.S. Treasury note yield surpassed 2.00% for the first time since the summer of 2019. 

3.    Rate hikes. After the release of the inflation data, investors started ratcheting up their rate-hike expectations, and the bond market is now pricing in almost seven rate hikes this year.

SPX sectors in play

Seven out of 11 SPX sectors closed positive this week. Energy(XLE) stocks continued its rally as crude oil prices pushed above USD 94 per barrel this week. Financials(XLF) also among top performing sector. Technology(XLK) and Communication Services(XLC) lagged. It’s expected cyclical sectors and asset classes that have more valuation support would outperform the growth oriented high valuation stocks. Refer to below sector indexes weekly performance table.

Technically, DJI and SPX indexes closed in between their 200-250dma, but Nasdaq still below both MAs 200dma and is in correction territory with more than 10% from its recent peak.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Chinese stocks rose amid supportive official comments and a perception that the country’s regulatory crackdown cycle had peaked. The Shanghai Composite Index (SSE weeklychart) gained more than 3% this week and was the top performer in my above indexes weekly performance table.

During the week, the People’s Bank of China (PBOC) said that loans for affordable rental housing would not count toward the limited amount banks can lend to the property sector. An article suggested that regulatory curbs on the internet sector would become more rules-based, raising the prospect that the government’s crackdown on the tech sector would ease.

In property sector news, cash-strapped developer China Evergrande Group plans to pay off its debt by restoring construction and sales activity, not by selling assets on the cheap, and vowed to complete 50% of pre-sold homes this year, Reuters reported.

In Hong Kong, the benchmark Hang Seng Index(.HSI weekly chart) also added 1.4% for the week, rebounded up to its 4-week high level.  

Singapore

STI index (STI weeklychart) closed at fresh 4-year new high in the week, its 2^nd week up in a row led by the banks. The expectation of rates hikes lifting bank stocks higher and higher.

Stocks Remain Volatile as Focus Turns to Earnings

 Weekly Wrap Content for the week of Feb 4:

1. Week 5 major indexes performance;

2. Week 5 US sector indexes performance;

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

U.S

For the week ended Feb 4, stocks remained volatile but recorded overall gains for the 2^nd consecutive week. It was one of the busiest weeks of the 4Q earnings reporting season, with 112 companies in the S&P 500 Index scheduled to report results. These included several mega-cap names, which drove significant moves in the overall benchmarks. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Payroll report on Friday showed a surprising gain of 467k jobs in Jan-roughly three times consensus expectations—despite the impact of omicron. Payrolls jump pushes bond yields to new two-year highs to 1.93% on Friday. (Bond prices and yields move in opposite directions.) 

2.    Earnings of mega-cap drove market. Companies that missed earnings expectations, such as Meta (Facebook), have seen their stock prices punished, FB nosedived 26% after earnings and wiped a record USD 232 billion off its market cap on Thursday. However, it's an encouraging sign that the market has rallied on positive announcements from names like Apple, Alphabet (Google) and Amazon. 

3.    Rate hikes. Expectations have now shifted to as many as six rate hikes this year. Interest-rate futures curves are now implying a 1-in-3 chance that the Fed hikes rates by 50 basis points (0.50%) at the March meeting.

SPX sectors in play

Seven out of 11 SPX sectors closed positive this week. Energy(XLE) stocks continued its rally as crude oil prices pushed above USD 92 per barrel. Financials(XLF) also among top performing sector. Communication Services(XLC) lagged, dragged down by FB. Refer to below sector indexes weekly performance table.

Technically, DJI and SPX indexes closed above their 200DMA, but Nasdaq still below its 200dma despite this week’s redound.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China’s financial markets were closed during the week for the Lunar New Year. In economic news, the official manufacturing PMI declined to 50.1 from December’s 50.3 reading, and the nonmanufacturing gauge—which measures activity in the construction and services sectors—fell to 51.1 from 52.7. The 50 mark separates expansion from contraction. China A-share market will resume trading next week.

In Hong Kong, the benchmark Hang Seng Index(.HSI weekly chart) jumped 4.3% for the week, fully recovered its previous weekly loss which was its worst week since August. The index rallied to their best session on Friday after resuming trading from CNY holiday.

Singapore

STI index (STI weekly chart) closed at fresh 30-month record high for the week, resuming upward move after profit-taking in previous week. The index appears bullish and in a nice uptrend, immediate resistance at 3380 thereabouts.