Stocks Ended Mostly Higher as Bond Yields Jump

Weekly Wrap Content for the week of Mar 25:

1. Week 12 major indexes performance;

2. Week 12 US sector indexes performance;

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

U.S

For the week ended Mar 25, major indexes ended mostly higher, with the large-cap S&P 500 Index reaching its highest level since February 10 on Friday. Worries about an increasingly hawkish turn by the Federal Reserve seemed to weigh on equity sentiment early in the week, while prompting a sell-off in the bond market. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Fed rate-hiking. On Monday, Fed Chair Jerome Powell repeated in a speech to the National Association for Business Economics that the central bank could deliver rate increases of larger than 25 basis points (0.25 percentage points) at future meetings if policymakers deem it necessary to control inflation. 

2.    Developments in Russia's war against Ukraine also remained on investors' radar. Stocks seemed to gain some footing Thursday afternoon after an advisor to Ukrainian President voiced “cautious optimism” on ceasefire talks. 

3.    Initial jobless claims report provided further evidence of the strength in the labor market with new claims falling to the lowest level since 1969. In addition, job openings are still exceptionally high, which is a good sign that businesses are expecting ongoing demand. Add to this the more than $2 trillion in accumulated household savings and we think consumer spending (70% of U.S. GDP) will be able to grow despite higher borrowing costs. 

4.    The S&P 500 was down as much as 13% this year before the recent rally has brough that back to 6%. The average return for the S&P 500 in the twelve calendar months following the last four initial Fed rate hikes ('94, '99, '04, '15) was 8.3%, as per data from FactSet.

SPX sectors in play

8 out of 11 SPX sectors closed positive this week. Information technology stocks (XLK) outperformed, helped by gains in Apple following news of analyst expectations for strong sales of the iPhone 13. A continued rise in many commodity prices boosted the energy(XLE) and materials sectors(XLB), while health care shares(XLV) underperformed, dragged lower in part by a decline in drug giant Pfizer. Refer to below sector indexes weekly performance table.

Technically, all the indexes have broken above its downtrend line drawn since its all-time high the previous week and stayed above for 2^nd week, SPX is trading above all major moving averages i.e 20/50 and 200 now, DJI and Nasdaq are above 20/50 dma but below their 200dma respectively.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Chinese markets fell amid delisting fears for U.S.-listed Chinese companies arising from a simmering bilateral dispute over auditing standards. For the week, the Shanghai Composite Index (SSE weekly chart) shed 1.2%.

Concerns about the fate of dual-listed Chinese stocks continued to dampen sentiment. Chinese regulators instructed some of the country’s U.S.-listed companies to prepare audit documents for the 2021 financial year, Reuters reported, citing unnamed sources. The companies reportedly included China’s top search engine Baidu, e-commerce platforms Alibaba and JD.com, and social media company Weibo.

However, analysts noted that it remained unclear if the talks between regulators on both sides would materialize into anything concrete. In a statement, the Public Company Accounting Oversight Board added that it “remains unclear” whether China would permit U.S. regulators to review the audits of U.S.-listed Chinese companies.

Reports of a worsening coronavirus outbreak across the mainland also depressed risk appetite. In the financial hub of Shanghai, the number of COVID-19 infections surged more than 60% to a record on Friday even as authorities broadened restrictions.

Hong Kong is suffering one of the deadliest outbreaks since the pandemic began in 2020. Hang Seng index(.HSI weekly chart) fell this week, shares of JD.com tumbled following a US$1.1 billion fundraising by its logistics arm on Friday erasing gains accumulated during the week. Traders kept risk appetite in check pending more potential slip-up in Big Tech earnings. Technically, the Hang Seng Index, indicators appear still weak after strong rebound last week, traders are still waiting for some concrete actions from the government to stipulate the markets, or else possible to fall back to form 2^nd leg of low.

Singapore

STI index (STI weekly chart) continued its rebound for 3^rd week. As Singapore announced this week to reopen borders to all full vaccinated travellers on Apr 1. STI weekly uptrend very well intact, expected for further upside.

Stocks Rally as Fed Hikes Interest Rates

Weekly Wrap Content for the week of Mar 18:

1. Week 11 major indexes performance;

2. Week 11 US sector indexes performance;

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

U.S

For the week ended Mar 18, stocks moved higher, ending a two-week losing streak and reclaiming much of the ground lost over the past month. Markets were supported by multiple factors, including falling oil prices, news that Russia had avoided defaulting on its sovereign debt, and the outcome of the Federal Reserve’s monetary policy meeting. While fighting continued in Ukraine, investor sentiment was also buoyed during the week by continued negotiations to end the conflict. Gains were widespread across the major indexes, with the tech-heavy Nasdaq Composite staging the biggest rally. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Fed rate-hiking. After two years of holding borrowing costs near zero, the Federal Reserve took the first step toward normalizing its policy last week. The announced 0.25% rate hike was the first since 2018, the first liftoff from zero since 2015, and likely the first in a series of hikes over the next two years. By the end of this tightening campaign, Fed officials expect to raise rates as high as 2.8%. 

2.    Stocks have historically continued to rise during Fed tightening. Based at the five tightening cycles since 1985, stocks have historically experienced some weakness around the first interest rate hike but generally maintained their upward trajectory six months and a year out.

 SPX sectors in play

10 out of 11 SPX sectors closed positive this week. The Information Technology sector(XLK) helped set the pace for stocks on the day and helped the tech-heavy Nasdaq to lead the major U.S. indices. Consumer Discretionary(XLY) and Financials(XLF) are among top gainers as well. The energy(XLE) sector lagged and was the only sector closed down. Refer to below sector indexes weekly performance table.

Technically, all the three indexes have had a strong rebound for the week, and recovered their losses in previous four weeks, SPX with even more gains. The indexes are breaking above their downtrend line drawn since its all-time high, technical signs show bulls are fighting back.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Chinese markets weakened during the week with the broad, capitalization-weighted Shanghai Composite index(SSE weekly chart) retreating 1.8% and the blue chip CSI 300 index down 0.8%, but the tone at the end of the week was positive after policymakers pledged economic support.

Chinese officials said they would introduce market-friendly policies and keep the capital market running smoothly at a meeting attended by President Xi Jinping’s economic czar, Vice Premier Liu He. In a statement carried by state media, China’s top financial policy body vowed to ensure stability in capital markets, support overseas stock listings, resolve risks around property developers and complete the crackdown on Big Tech “as soon as possible.”

Hang Seng index(.HSIweekly chart) snapped back and halted its 4-week rout after stunning rebound in tech giants such as Alibaba, JD.com, after Beijing’s verbal support for markets. Hang Seng Index members recouped US$468 billion over the last two days, more than they lost in the sell-off earlier this week. Technically, the Hang Seng Index formed a very bullish engulfing candlestick pattern on its weekly chart.

Singapore

STI index (STI weeklychart) continued its rebound for 2^nd week. Weekly uptrend very well intact, expected for further upside.

Ukraine War and Fed Rates Hike in Focus, Calm Before Storm

 Weekly Wrap Content for the week of Mar 11:

1. Week 10 major indexes performance;

2. Week 10 US sector indexes performance;

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

U.S

For the week ended Mar 11, stocks moved lower over another week of extreme volatility provoked by the Russian/Ukraine war. At its intraday low for the week on Tuesday, the Nasdaq Composite fell to a level that was nearly 22% below its recent peak, more than the 20% threshold that technically defines a bear market. At its low point, the S&P 500 Index was roughly 14% off its high, still in correction territory. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Latest data released in the week, U.S CPI inflation for February reached another 40-year high, coming in at 7.9% YoY. This inflation figure is backward-looking and does not fully account for the recent move higher in oil prices. Thus, headline CPI inflation expected to remain elevated for the month of March, potentially moving toward 8% to 10%. 

2.    Surging commodity prices dominate headlines. Not only have we seen higher oil and gas prices, but also higher wheat and grain prices, as well as some further disruption to supply chains, particularly in base-metal commodities like palladium, which are used in auto manufacturing.

3.    On Tuesday, U.S. announced it was cutting off all imports of Russian oil and gas and told Americans to be prepared for higher gas prices. European nations, which are much more reliant on Russian energy imports, announced less stringent measures. WTI this week fell to around $109, after reaching recent highs of around $130. 

4.    Coming week rate hike in everyone’s focus. March 15-16 FOMC meeting. We see the Fed raising rates at the next four to five meetings, likely in 0.25% increments, as well as starting balance-sheet reduction in the second half of this year. The probability of a 0.50% Fed rate hike in March has fallen to near zero, after spiking higher prior to the Russia/Ukraine crisis. 

SPX sectors in play

Only one(Energy) out of 11 SPX sectors closed positive this week. The energy(XLE) sector performed best. Consumer staples(XLP) stocks underperformed as Coca-Cola, PepsiCo, and other food and consumer products makers announced that they were suspending business in Russia. Growth and high valuation stocks such as Technology(XLK), consumer discretionary(XLY), and communication services(XLC) sectors were also among top losers. Refer to below sector indexes weekly performance table.

STORM IS COMING NEXT WEEK? Technically, all the three indexes have been forming a bearish wedge on their daily chart, the Nasdaq especially weaker, if recent low hit on 24 Fed (which was the first day Ukraine war started) was broken, further selloffs expected.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Chinese markets recorded a weekly loss amid a resurgence in COVID-19 outbreaks and the war in Ukraine, which pressured prices for industrial metals and agricultural commodities. The broad, capitalization-weighted Shanghai Composite Index(SSEweekly chart)  slumped 4%.

Risk markets recovered late on Friday after talks between Chinese and U.S. regulators over cooperation on audit and regulation were reportedly proceeding smoothly. Last week, the U.S. Securities and Exchange Commission (SEC) identified five Chinese companies that could be subject to delisting from U.S. exchanges if they fail to comply with audit requirements.  

At the weeklong annual gathering of the National People’s Congress, Beijing set a goal for gross domestic product to expand “about 5.5%.” In economic readings, China’s producer price index rose 8.8% in February from a year earlier, slightly above forecasts, while the consumer price index held steady at 0.9%, matching expectations.

Hang Seng index(.HSI weeklychart) slipped to its lowest close in over five-and-a-half years on Friday, but trimmed earlier losses as investors' hopes rose for an agreement between Chinese and U.S. regulators over securities supervision. The .HSI index ended 4^th week decline and lost 4320pts or 17.4% in four weeks, as surging Covid-19 cases and Ukraine war triggered capital outflow from the international hub. Technically, no signs of bottoming yet.

Singapore

STI index (STI weeklychart) rebounded 0.7% this week, ended its two-week losing streak. Was the only bright spot among my index watchlist above. Weekly uptrend still intact, for now.

Stocks Ended Lower as Oil Prices Surge

Weekly Wrap Content for the week of Mar 4:

1. Week 9 major indexes performance;

2. Week 9 US sector indexes performance;

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

U.S

Stocks ended lower over a volatile week ended Mar 4, as investors continued to weigh developments in the crisis in Ukraine. The S&P 500 Index was dragged lower by the heavily weighted technology, financials, consumer discretionary, and communication services sectors, but all other segments moved higher. The Cboe Volatility Index (VIX) reached its highest point in over a year. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Oil prices spiked as high as $116 per barrel last week, a level last seen in 2008. Uncertainties over global crude and natural gas supply have risen amid war in Ukraine and escalating sanctions on Russia. 

2.    Russia's economic activity poses a small direct impact on the U.S economy. Russia's total GDP is $1.7 trillion, less than the state of Texas. Moreover, U.S. exports to Russia represent 0.02% of domestic GDP, and U.S imports from Russia account for 0.08%. But Russia provides 28% of the European Union's crude oil imports and 41% of its natural gas, adding more direct headwinds to Europe's near-term economic path. 

3.    Interest Rates. The yield curve (a measure of 10-year yields minus two-year yields) is often a reliable indicator of economic and monetary-policy conditions. The yield curve has flattened recently amid Fed and growth concerns. A yield curve that is approaching inversion (10-year rates below two-year rates) will evoke calls pointing out that inverted yield curves predict impending recessions. 

4.    Fed Chair Powell favors moving slowly on interest rate hikes. At Congressional testimony on Wed and Thu, Powell also said that he was inclined to stick with a quarter-point increase in the federal funds rate in March, dispelling fears of a 50-basis-point (0.50%) increase. 

5.    The economy is still in a stronger position than prior oil spikes or flattening yield curves. Latest employment report on Friday was encouraging. 678,000 jobs were added in Feb, the best month since last July. The unemployment rate fell to a post-pandemic low of 3.8%. 

SPX sectors in play

Five out of 11 SPX sectors closed positive this week. The energy(XLE) sector performed best, as international oil prices traded as high as nearly USD 120 per barrel on Thursday before news of a possible Iran nuclear deal caused them to retreat a bit. Technology(XLK), financials(XLF), consumer discretionary(XLY), and communication services(XLC) sectors under performed. Refer to below sector indexes weekly performance table.

Technically, all the three indexes have been largely trading in sideways for the past six sessions with ups and downs. Very difficult trading environment.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Chinese markets retreated as the war in Ukraine and disappointing economic data dampened risk appetite. The Shanghai Composite Index(SSE weekly chart) dipped 0.11%.

Escalating sanctions against Russia and caution ahead of a weeklong annual meeting of China's parliament starting Saturday restrained investor sentiment. China will reportedly announce an official 2022 gross domestic product (GDP) target of 5.0% to 5.5%, the first time since 1991 that the country’s economic growth target will be below 6%. Investors will also watch for signs of more economic stimulus in a politically sensitive year.

News from China’s property sector continued to reflect severe liquidity pressures on developers. Reports of credit rating downgrades and missed payments from cash-strapped developers continued, while a few companies forged ahead with restructuring plans. KWG Group, Shimao Group, and Redco Properties all had their credit ratings cut by Western credit agencies. Some domestic companies took advantage of the weak environment to buy back bonds in the open market.

Hong Kong(.HSI weeklychart) stocks tumbled, capping a third week of decline, after an escalation in the Russia-Ukraine war caused damages to Europe’s biggest nuclear power plant. Haven trades strengthened. The three-week retreat is the longest streak since December. The Tech Index sank 4.4%.

Hong Kong Exchanges & Clearing and AAC Technologies were among 12 index members to post new 52-week lows, according to Bloomberg data. Alibaba Group Holding, Tencent Holdings and Meituan lost by 3.7 per cent to 5.4 per cent. Concerns about Beijing tightening its grip on the industry added to the poor sentiment.

Singapore

STI index (STI weeklychart) fell 2% for a second week of decline, trimmed its year-to-day return to only 3.3% from 10% two weeks ago. Weekly uptrend still intact.