Stocks Fell on Strong Economic Data

Weekly Wrap Content for the week of Dec 9:

1. Week 49 major indexes performance;

2. Week 49 US sector indexes performance;

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

U.S

For the week of Dec 9, the U.S stocks gave back much of the previous two weeks’ gains, as some surprisingly strong economic data dampened hopes that the Federal Reserve might soon be able to curb its program of raising interest rates to cool inflation. The S&P 500 Index recorded its worst return in five weeks, while the small-cap Russell 2000 Index endured its worst week since late September. The S&P 500 unable to stay above its 200-day moving average following the recent rally. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:                

1.    Strong services sector data. ISM index of services sector activity reported beginning of the week rose to 56.5, near its highs over the past several months. The ISM noted a particular pickup in business activity, especially in real estate and food services and accommodation. 

2.    PPI(Producer price inflation) data released on Friday surprised moderately to the upside, rising 7.4% yoy, beat expectations of around 7.2%, sending stock futures sharply lower. 

3.    Bond yields. The yield curve (10-year rates minus 2-year rates) falling to deeply inverted territory, as short-term rates reflect restrictive Fed policy and longer-term rates signal falling inflation and a declining GDP growth outlook. The deeply inverted yield curve indicating fixed-income investors are concerned about economic growth prospects.

SPX sectors in play

All 11 sectors in the S&P 500 ended in the red this week. The typically defensive health care(XLV), consumer staples(XLP), and utilities(XLU) sectors fared best. Energy(XLE) shares fell sharply as international oil prices tumbled to their lowest level since January, while weakness in Google parent Alphabet weighed heavily on communication services(XLC) stocks. Financials(XLF) also performed poorly as several bank executives offered negative outlooks. Goldman Sachs’ CEO David Solomon warned about pay and job cuts as well as “some bumpy times ahead,” while JPMorgan Chase CEO Jamie Dimon told CNBC that a “mild to hard recession” may hit next year. Refer to below SPX sector indexes weekly performance table. 

Indexes technical levels

Technically, DJI index closed 1^st week down after four-week up streak, also its first time closed below 20dma in two-month time. SPX given back its previous two weeks gain and unable to hold above 200dma this week after recent rally. Nasdaq closed at four-week low. 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 rose as Beijing’s rapid easing of coronavirus pandemic restrictions bolstered investor sentiment despite an expected surge in infections in the coming months. The Shanghai Composite Index gained 1.61%, while Hong Kong’s Hang Seng Index added 6.56%.

SSE weekly chart

.HSI weekly chart

China shifts from zero-COVID to reopening. Chinese officials announced a 10-point guideline to their new COVID prevention and control measures. The new measures outlined by the State Council include home quarantine for people with mild symptoms, a vaccination program for the elderly, and reducing mass testing requirements in many cities. Lockdowns in high-risk areas would be lifted if no new cases appeared for five consecutive days.

Many analysts have noted that China’s rapid shift from zero-COVID could be a headwind for the economy and increase business uncertainty if infections and deaths start to rise.

Global demand slows, inflation eases. Weak trade data tempered optimism about reopening. China’s exports fell a bigger-than-forecast 8.7% in November from a year earlier, marking the steepest monthly drop in exports since February 2020.

Technically, SSE index rebounded to testing its major downtrend line drawn since it beginning of the down move in Dec last year. While .HSI index made an awesome “V-shape” rebound, has since recovered its full losses from Sep-Oct, there are still plenty of room to upside after the recent rally, the .HSI index still losing 15% YTD.

Singapore

STI index retreated 0.4%, dropped near to its four-week sideway bottom. The index appears still in range-bound consolidation mode after end Oct- mid Nov rally.

STI weekly chart

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