Signs of Slowing Economy and Earnings, Possible Turnaround in Sentiment

Weekly Wrap Content for the week of Jul 22:

1. Week 29 major indexes performance;

2. Week 29 US sector indexes performance;

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

4. Contents inluding information sourced from various public market reports

U.S

For the week ended 22 Jul, U.S three major indexes registered their highest close in seven-week streak, as stocks carried over momentum from late the previous week as investors appeared to welcome signs of a slowing economy and fading inflationary pressures. Stocks rose for the week, adding to a run that put the S&P 500(SPX) up 9% over the last month, though still down around 17% YTD. Signs of peaking inflation, relief from rising yields and most recently, corporate earnings announcements believed to be the supportive catalysts for the rally. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    Q2 earning reports are undergoing, many of which indicated a slowing economy but also some greater resilience in corporate profits and outlooks than many had expected. Dow component American Express rallied after topping expectations. SNAP reported a flat increase in advertising revenue in the second quarter and failed to offer guidance for the remainder of the year. 

2.    Longer-term U.S. Treasury yields hit two-month lows on weak economic data. Preliminary July manufacturing and services sector reports all signaled slowing business activity, notably a drop into contraction territory for the U.S. services sector. The weak economic data briefly pushed the yield on the benchmark 10-year U.S. Treasury note down to 2.73% on Friday morning, its lowest level in nearly two months.

SPX sectors in play

Nine out of 11 sectors in the S&P 500 recorded gains. Small-cap shares and the technology-heavy Nasdaq Composite outperformed. Consumer discretionary(XLY) shares performed best, helped by rebounds in Amazon.com and Tesla, while the typically defensive health care(XLV) and utilities(XLU) sectors lagged. Weakness in Verizon and Google parent Alphabet also weighed on communication services(XLC) shares. Refer to below sector indexes weekly performance table.

Technically all three indexes are still in downtrend, but have crossed and closed above both 20 and 50dma since they crossed below in Apr. Technically bullish signs.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China markets posted mixed returns after Premier Li Keqiang tempered expectations of excessive stimulus and indicated flexibility on China’s annual growth target. The broad, capitalization-weighted Shanghai Composite Index(SSE weekly Chart) added 1.3% and the blue chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, dipped 0.2%.

At a meeting of global business leaders hosted by the World Economic Forum, Li said that as long as employment is relatively sufficient, household income grows, and prices are stable, slightly higher or lower growth rates are both acceptable. China issued a growth target of about 5.5% for 2022 at a Politburo meeting in April, but many economists believe that Beijing will have a hard time meeting its goal.

China’s cybersecurity regulator fined Didi Global CNY 8 billion (USD 1.2 billion), potentially signaling an end to the government’s crackdown on the ride-hailing app and clearing a path for a public listing in Hong Kong. Didi was one of the most high-profile targets of Beijing’s clampdown on the country’s internet industry starting in 2020, when regulators unexpectedly canceled the initial public offering of Ant Group.

Hang Seng index(.HSI weekly chart) advanced, taking the index to its best weekly gain this month after China’s banking regulator pledged to take measures to defuse a property and banking crisis caused by a credit squeeze. Technically, the index appears still weak below both its 20 and 50dma.   

Singapore

STI index (STI weekly chart) advanced 2.65% for the week, its best since Feb 11 week. Technically, the index has had a bullish breakout this week from its six-week sideway consolidation range, closed at six-week high. Immediate next target (resistance) 3250, and downside support at 3100 level.