S&P 500 Edges Near Bear Market

Weekly Wrap Content for the week of May 20:

1. Week 20 major indexes performance;

2. Week 20 US sector indexes performance;

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

U.S

For the week ended 20 May, U.S. stocks continued to face downward pressure, with Wednesday marking the biggest one-day decline in the S&P 500 since June 2020. Equity markets broadly are now down for the seventh week in a row, and the S&P 500 approached a technical bear market – or 20% pullback – but closed the week down about 18% year-to-date. Markets were especially rattled in the week by earnings reports from key retail giants like Walmart and Target. Both companies reported lower-than-expected operating margins, driven by higher input costs from areas like freight and fuel. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    Fears of a recession and profit-margin pressures intensify, pushing market further down. At its low point on Friday, the S&P 500 Index was down roughly 20.9% from its January intraday high, exceeding the 20% threshold for a bear market and placing it back at levels last seen in February 2021. 

2.    Disappointing earnings and revenue results from several of the nation’s major retailers. Target(TGT) fell roughly 25% after earnings fell short of estimates by nearly a third. Results from Walmart(WMT), Lowe’s(LOW), and Home Depot (HD) also fell short of expectation. Costco(COST) and Kohl's corp(KSS) tumbled. Aside from the hit to profit margins, investors seemed to worry that major retailers would be forced to pass on more of their higher input costs to customers in coming months, keeping inflation elevated. 

3.    Fed Powell acknowledges “some pain” ahead if necessary to control inflation. On Wednesday, Fed Chair Jerome Powell told The Wall Street Journal that taming inflation was an “unconditional need” and that policymakers wouldn’t hesitate to raise rates as much as necessary, even if it meant “some pain [was] involved.” 

4.    Economic data offered mixed signals about whether a recession was imminent. Retail sales had risen more than expected in April (0.6% versus roughly 0.4%), however, housing starts and existing home sales came in lower than expected.

SPX sectors in play

Three out of 11 SPX sectors closed positive this week, Energy(XLE) was top gainer, Consumer Staples(XLP), Consumer Discretionary(XLY) and Technology(XLK) are among the losers. Refer to below sector indexes weekly performance table.

Technically still bearish for all the three indexes, Dow was on 8^th week losing streak, Nasdaq and SPX were on 7^th straight losing week.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China markets rose as the central bank cut interest rates to support the country’s flagging property sector even as disappointing economic data weighed on sentiment. The broad, capitalization-weighted Shanghai Composite Index(SSE weekly chart) added 2%.

The People’s Bank of China (PBOC) cut the five-year loan prime rate (LPR), a reference for home mortgages, by an unexpectedly large 15 basis points to 4.45%. Banks use the five-year LPR to price mortgages, while most other loans are based on the one-year rate.) The reduction in the five-year LPR signals that China’s government is trying to bolster homebuying demand.

Hang Seng index(.HSI weekly chart) was posting its first weekly gain this month after China lowered a key interest rate, boosting the growth outlook. Technically, the .HSI index rebounded back above its 20,000 level.

Singapore

STI index (STI weeklychart) rebounded after its two-straight weekly down. Bulls eventually able to hold above 200dma after back and forth hovering around it for the whole week, as China markets sentiment seems approving. Technically cautiously bullish.