Stocks Sink on Dashed Hopes for a Fed Pivot

Weekly Wrap Content for the week of Nov 4:

1. Week 44 major indexes performance;

2. Week 44 US sector indexes performance;

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

U.S

For the week of Nov 4, U.S stocks fell after the Federal Reserve dashed market hopes for an impending pivot in monetary policy in the form of a pause or slower pace of rate hikes. Wednesday’s FOMC announcement and Fed Chair Jerome Powell’s post-meeting press conference were the focus of the week.

As was widely expected, the committee said that it was raising rates by 75 basis points. However, Powell’s press conference took a hawkish turn. Notably, Powell stated that it is “very premature” to consider pausing rate hikes, and the S&P 500 Index finished the day down 2.50%. The technology-heavy Nasdaq Composite Index was hit particularly hard as growth stocks declined more than value companies. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:                

1.    Fed rate hike: Last week the Federal Reserve (Fed) raised the fed funds rate by 75 basis points (0.75%) at its November FOMC meeting. This was the Fed's fourth consecutive 75-basis-point rate hike, which brings the fed funds rate from near zero to 4.0% in about eight months, an unprecedented pace of interest-rate hikes in the U.S. economy. 

The Fed may move at a more gradual pace of rate hikes, but this does not mean a pause is coming. Markets currently expect the fed funds rate to rise to about 5.25% by March 2023. Historically, the 12 months following a peak in the fed funds rate has been positive for stock markets, with the S&P 500 returning on average about 15%. 

2.    Jobs remains resilient. Friday's nonfarm-payrolls jobs report for the month of October shows jobs increased by 261k, above expectations of 200k. The unemployment rate did tick higher to 3.7%, up from 3.5%, as labor-force participation moved lower, from 62.3% to 62.2%. 

While these labor figures reflect a solid labor market and healthy wage gains for consumers, they do little to deter the Fed from pushing forward with its rate-hiking campaign, especially since wage gains remain above pre-pandemic levels.

SPX sectors in play

Only three out of 11 sectors in the S&P 500 ended green this week. Energy(XLE) and  Industrials stocks(XLI) outperformed. Communication Services(XLC) and Technology(XLK) sectors lagged. Tech stocks suffered as the fallout from a largely disappointing earnings season for bellwethers such as Facebook parent Meta Platforms, Amazon.com, and Microsoft continued. Although it is now a private company, the deep job cuts expected at Twitter under new owner Elon Musk added to the malaise of the tech sector. Refer to below SPX sector indexes weekly performance table.  

Indexes technical levels

Technically, DJI index held up much better than tech-heavy Nasdaq Composite Index as growth stocks declined more than value companies. DJI fell 1.4% weekly after 4-week up streak, Nasdaq fell 5.65% and gave back all its previous two weeks gains, and SPX index declined 3.35% gave back its previous week’s gain. Click to view below the three major indexes’ weekly charts.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China’s stock markets rallied amid speculation that the country was preparing to relax its zero-tolerance approach to the coronavirus. The broad, capitalization-weighted Shanghai Composite Index gained 5.3% this week.

SSE weekly chart

Several reports surfaced last week saying that China was preparing to retreat from the zero-COVID approach that has hurt the country’s economy. An unverified report widely circulated on social media stated that high-level officials met the prior weekend at the request of President Xi Jinping to discuss a conditional opening plan aimed at substantially opening by March 2023, Bloomberg reported.

Signs of progress in a longstanding auditing dispute between the U.S. and China also bolstered sentiment. U.S. audit officials completed their first on-site inspection round of Chinese companies ahead of schedule, with dozens of accounting inspectors scheduled to leave Hong Kong over the weekend, Bloomberg reported.

In economic news, official PMI readings for manufacturing and non-manufacturing activity in October both missed forecasts and landed below 50, the level separating growth from contraction.

In Hong Kong, the Hang Seng index(.HSI weekly chart) logged the biggest weekly gain in 11 years as mainland China funds added positions, and another round of speculation about the end of Beijing’s zero-Covid policy helped fan the rally. Alibaba, JD.com’s 12 per cent surge lifts Hong Kong stocks to best week since 2011.

Mainland funds have bought US$3.8 billion worth of shares in Hong Kong this week, adding to US$3.6 billion of inflows last week. Global bankers showed optimism in Hong Kong’s role as a super-connector to China’s financial markets during an investment summit.

.HSI weekly chart

Singapore

STI index ended 2nd weekly gain after an eventful week on 4 Nov, alongside most regional peers. Going forward, it’s expected China’s zero-Covid policy will be in forefront of market speculation until it’s been removed eventually. Market will also pay much attention to U.S midterm election results on coming Tuesday 8 Nov.

Technically, STI closed two-week up in a row, rebounding to between its 20 and 50dma in a downtrend. Immediate upside resistance area at around 50dma 3150 to 3168 recent high; and downside support at 3190-3170 area.

STI weekly chart

 

Source: Contents/Data including information from various public market reports