High Inflation and Fear of Recession Punish Stocks

Weekly Wrap Content for the week of May 13:

1. Week 19 major indexes performance;

2. Week 19 US sector indexes performance;

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

U.S

U.S. major indexes recorded another week ended 13 May, as investors appeared to grow increasingly skeptical that the Federal Reserve will be able to achieve a “soft landing” for the economy by raising rates enough to tame inflation without causing a recession.  

It marked the sixth consecutive weekly decline for both the S&P 500 Index and the Nasdaq Composite and the seventh for the Dow Jones Industrial Average—the longest stretch for the latter since 2001, according to The Wall Street Journal. At its low point on Thursday, the S&P 500 was down nearly 18% from its peak, well into correction territory but just above the -20% performance threshold that typically defines a bear market. The benchmarks pared some of their losses on Friday, helped by a rally in Tesla shares after CEO Elon Musk tweeted that his deal to buy Twitter—partly funded by sales of a portion of his considerable stake in the electric car maker—was “on hold.”  Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    Inflation moderates less than hoped in April. Headline CPI increased 8.3% in April down from 8.5% in March, but not as much as expected 8.1% yoy. 

2.    Global sentiment seemed to get some relief after Chinese officials suggested that COVID-related lockdowns—which have been a source of uneasiness—may be set to ease.

SPX sectors in play

Only one out of 11 SPX sectors closed positive this week, that is Consumer Staples(XLP). Consumer Discretionary(XLY), Financials(XLF) and Technology(XLK) are lagging. Refer to below sector indexes weekly performance table.

Technically still bearish for all the three indexes, despite recovery on last two trading session of the week. It appears a bullish hammer formed on the weekly chart but we need to wait and see one more weekly candle to confirm the bullish reversal, for all the three indexes.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China markets rallied as a fall in coronavirus cases and reassuring comments from the securities regulator lifted investor sentiment. The broad, capitalization-weighted Shanghai Composite Index(SSE weekly chart) added 2.76%.

The China Securities Regulatory Commission aims to increase the participation of institutional investors in the country’s stock markets and expand the investible universe of the exchange link with Hong Kong, according to an interview carried on state media with Vice Chairman Wang Jianjun.

The yuan’s slump is an unwelcome development for issuers of dollar bonds, many of which are in the debt-laden property sector and struggling with slowing sales, weak prices, and refinancing pressures. The property sector’s liquidity crisis continued as Sunac China Holdings and Zhongliang Holdings became the latest developers to discuss debt solutions on their repayment obligations.

Hang Seng index(.HSI weekly chart) jumped late in the week, paring the loss for the week to 0.5% as authorities rule out lockdown in Beijing. Technically, the .HSI index appears still weak, closed just 100pts below 20,000 level.

Singapore

STI index (STI weekly chart) declined for 2^nd week in a row, slumped the most with 3% loss this week. Technically bearish, immediate support to watch 3128 coming week which is 8 Mar low.