Stocks Sell Off Hard Anticipating More Aggressive Rate Hikes

Weekly Wrap Content for the week of Apr 22:

1. Week 16 major indexes performance;

2. Week 16 US sector indexes performance;

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

U.S

For the week of 22 Apr, U.S. equities closed solidly lower, with the major indexes posting another week of losses. The S&P 500 registered a third-straight weekly decline with the markets remaining hamstrung by multiple major uncertainties and headwinds. Fedspeak continued to pour in and boost expectations of aggressive Fed measures on the near horizon, including a series of 50 bp hikes and the beginning of reducing its massive balance sheet. Meanwhile, the war in Ukraine escalated to keep global economic and inflation concerns palpable, while earnings season began to heat up. Shares of Netflix tumbled more than 35% during the week, as the company reported disappointing quarterly results that were headlined by a sequential decline in its global subscriber rolls. Refer to major indexes’ weekly performance tables below.

Key highlights for the week/outlook:

1.    Fed strikes hawkish tone. Fed Chair Jerome Powell said a 50-basis-point rate increase could be “on the table” for the May 3‒4 policy meeting and stated that “it is appropriate…to be moving a little more quickly.” While acknowledging the challenges of engineering a soft landing, Powell disputed fears that the Fed’s rate-hiking cycle would risk pushing the economy into recession, citing the historically strong labor market. James Bullard, president of the Federal Reserve Bank of St. Louis, indicated that a rate increase of as much as 75 basis points (0.75 percentage points) could be up for discussion. 

2.    April business activity mixed with services slowing and manufacturing accelerating. The preliminary S&P Global U.S. Manufacturing PMI Index for April unexpectedly rose to 59.7 from March's unrevised 58.8 figure, and versus the Bloomberg consensus estimate of a decrease to 58.0. The preliminary S&P Global U.S. Services PMI Index showed growth for the key U.S. sector in April surprisingly slowed to 54.7, compared to expectations to remain at March's 58.0 figure.

SPX sectors in play

Two out of 11 SPX sectors closed positive this week. Netflix Inc. (#NFLX) falling sharply after its unexpected subscriber decline and softer-than-expected guidance to weigh on the Communications Services(XLC) sector, which was the worst performer on the week. The sectors have solid performance so far this year also started cracking this week, such as Energy(XLE) and Healthcare(XLV). Consumer Staples(XLP) and Real Estate(XLRE) closed with gains. Refer to below sector indexes weekly performance table.

Technically bearish for all the three indexes as they have breakdown from their recent consolidation area and dropped decisively lower. Nasdaq Composite Index among the weakest and expected to re-test its 12500 level for 3^rd time soon.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China markets slid as investors worried about the economic fallout from coronavirus lockdowns after officials said tough restrictions would remain in place. The CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, fell 4.2% this week in its worst five-day performance since mid-March, according to Bloomberg. The Shanghai Composite Index (SSE weekly chart) dropped 3.87%.  

Foreign investors sold a net USD 1.01 billion worth of Chinese stocks so far in April via the Hong Kong Stock Connect program, Reuters reported. The latest outflow comes after foreigners sold roughly USD 7.1 billion in March, which was the largest outflow in nearly two years. The outflows have stoked official concern, with the China Securities Regulatory Commission reportedly calling upon the country’s National Social Security Fund, banks, and insurers to boost their equity investments, Bloomberg reported.

China’s economy grew at a stronger-than-expected 4.8% pace in the year’s first quarter from a year ago, up from 4.0% in last year’s fourth quarter. On a quarter-on-quarter basis, the economy expanded 1.3% in the first three months of the year, slowing from the previous quarter’s 1.6% increase. The IMF cut China’s 2022 growth forecast to 4.4% from 4.8% in its latest outlook, the second downgrade for the country in three months.

Hang Seng index(.HSIweekly chart) lost 4.09% for this week, recorded its 3^rd week consecutive retreat.  

Singapore

STI index (STI weeklychart) was up 0.76% for this week, was the only one in my watchlist indexes refer to the above table. The index rebounded 1^st week after two-week down. Weekly chart uptrend is well intact, for now. Key resistance level 3466(year-high), and immediate support at recent low 3300 level.