Stocks Pull Back From Previous Week’s Rally

Weekly Wrap Content for the week of Jun 3:

1. Week 22 major indexes performance;

2. Week 22 US sector indexes performance;

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

U.S

For the week ended 3 Jun, U.S stocks surrendered a portion of the previous week’s strong gains as investors continued to question whether the Federal Reserve will be able to rein in inflation without causing a recession. Much of the week’s data suggested continued solid economic expansion, at least for now. Inflation may have peaked, but Fed’s path remains uncertain. Some speculation grew that the Fed might pause rate hikes at its September meeting to gauge their impact to date on the economy. Refer to major indexes’ weekly performance table below.

Key highlights for the week and outlook:

1.    Healthy job growth supports a reasonably favorable outlook for the consumer. The economy added 390k jobs in May, exceeding consensus expectations of 322k. Year-to-date monthly payroll gains are running at more than double the pace of 2018 – the previous period when the market grew worried that Fed rate hikes were ushering in an economic downturn. 

2.    Unemployment rate not heralding a coming recession. The unemployment rate held steady at 3.6% in May, the best rate since the pandemic and just a shade above a half-century low. Low unemployment is obviously helpful to consumer spending. 

3.    Also in May employment report, average hourly earnings were up 5.2% over the prior year. Wage growth ran between 2%-2.5% for most of the prior economic expansion (2009-2020), peaking at 3.5% in 2019, so current wage gains above 5% provide a favorable tailwind for consumers. 

4.    The stock market reacted negatively on Friday to the employment data, not because it was bad news for the economy, but instead because it was sufficiently positive to keep the Fed in an aggressive stance toward coming rate hikes.

SPX sectors in play

Two of the 11 sectors in the S&P 500 advanced, Energy(XLE) and Industrials(XLI) shares outperformed, helped by a rise in Boeing. Consumer discretionary(XLY) shares also proved resilient, boosted by gains in Amazon.com. Refer to below sector indexes weekly performance table.

Technically all the three indexes dropped around 1% after a strong rally previous week. Volume is lightest in 7 weeks in the holiday-shortened week. SPX immediate technical support at 4074; Nasdaq gap support 11800-11850; DJI 32600.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China markets rallied in a holiday-shortened week after Beijing unveiled a raft of support measures to cushion an economic slowdown triggered by the country’s zero-tolerance approach to the coronavirus. For the week ended Thursday, the broad, capitalization-weighted Shanghai Composite Index(SSE weekly chart) rose roughly 2.1%, and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, climbed 2.2%. China’s stock and bond markets were closed Friday for the Dragon Boat Festival.

China’s government unveiled more details of the stimulus programs it announced the previous week, with 33 measures covering fiscal, financial, investment, and industrial policies. Demand for Chinese bonds—already weakened due to rising U.S. Treasury yields—received a further setback amid reports that the government plans to accelerate the issuance of local government special bonds for funding various projects.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to a stronger-than-expected 48.1 in May from 46.0 in April, when it hit its lowest level in 26 months. Headlines regarding China’s debt-laden property developers turned slightly positive. A private survey showed that new home prices rose slightly in May from April.

Hang Seng index(.HSI weekly chart) recorded weekly gain while it also closed for public holiday on Friday. The index rebounded to close above both its 20 and 50dma for the 1^st time since Feb 16—a positive indicator that the index turning into technical bullish now.

Singapore

STI index (STI weekly chart) closed flattish this week, the index has been in sideways consolidation into 3^rd week. Technically cautiously bullish as the index closed just above its 200dma.