Fears of A “Hard Landing” Send Stocks Sharply Lower

Weekly Wrap Content for the week of Jun 17:

1. Week 24 major indexes performance;

2. Week 24 US sector indexes performance;

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

U.S

For the week ended 17 Jun, U.S stocks finished sharply lower for a 2^nd consecutive week in a knee-jerk reaction to the Federal Reserve’s most aggressive rate hike since 1994, which raised recession fears. The S&P 500 Index recorded its worst weekly decline since March 2020 and entered a bear market, ending the week nearly 24% below its January peak. Meanwhile, the percentage of S&P 500 members that were trading above their 50-day moving average sank below 5% during the week, the lowest level since pandemic fears battered shares more than two years ago. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    The Fed’s policy committee announced on Wednesday afternoon that it was raising the federal funds rate by 75 bps to a target range of 1.50% to 1.75%, its highest level since early 2020, although one member dissented. Stocks rallied as investors appeared to welcome what Fed Chair Jerome Powell termed the “strong move” in his post-meeting press conference, as well as his expressed willingness to raise rates in another 75 bps increment if necessary—although he does not expect rate increases of this magnitude to be “common.” At the same time, Powell insisted that “there's no sign of a broader slowdown that I can see in the economy.” 

2.    Housing market sees impact of rising mortgage rates. Several reports indicated that the housing sector was already feeling the impact of Fed tightening and the surge in mortgage rates: Building permits fell 7% in May to their lowest level since last September, while housing starts sank 14.4%, the biggest drop since the onset of the pandemic. Weekly jobless claims also came in higher than expected (229,000 versus roughly 210,000). 

3.    Retail sales data, reported Wednesday, further stoked recession fears. Overall sales fell 0.3% in May, dragged lower by a sharp decline in auto purchases, which partly reflected higher rates on car loans. 

4.    Treasuries were mixed, with the yield curve flattening some, while the U.S. dollar resumed its rally.

SPX sectors in play

All 11 sectors in the S&P 500 closed lower for 2^nd consecutive week. Crude oil prices were sharply lower and gold traded to the downside. Energy( XLE) was the worst performer with more than 17% loss. Refer to below sector indexes weekly performance table.

Technically all the three indexes dropped from 4.8% to 5.8% this week, have broken down their four-week technical support and went down further, technical indicators appear very bearish.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China markets advanced on hopes that a pickup in fixed asset investments would put the country’s economy back on track. The broad, capitalization-weighted Shanghai Composite Index(SSE Weekly Chart) added 1.0% and the blue chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, rose 1.4% to its highest level in three months, according to Reuters.

China’s state planner approved 10 fixed asset investments worth CNY 121 billion (USD 18.1 billion) in May, a more than sixfold jump from April. Sentiment also received a boost after data showed surprising growth in industrial production in May and from hopes of increased policy support following weak housing market data. News of relatively relaxed coronavirus curbs in Beijing also lifted investors’ optimism. The city is returning to regular testing and targeted lockdowns rather than mass testing and lockdowns of entire districts.

Hang Seng index(.HSI weekly chart) was down 3.4%, affected by the Fed rates hike as HK markets are more influenced by international investors. Technically, Hang Seng Index managed to closed just above 21,000 level which is a positive sign, expected the index to continue rebound in coming week.

Singapore

STI index (STI weekly chart) extended its previous week’s losses, was down 83.64pts or 2.6% this week. Technically, STI has broken down its technical support level for past five-week, technical indicators turned bearish and expected further downside move, with immediate support to watch at around 3050 level.