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.