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.