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.