Stocks Higher on Expectation of Slower Rate Hikes

Weekly Wrap Content for the week of Dec 2:

1. Week 48 major indexes performance;

2. Week 48 US sector indexes performance;

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

U.S

For the week of Dec 2, U.S stocks ended higher, buoyed by the possibility that the Federal Reserve may slow the pace of its interest rate increases. Growth stocks outperformed their value counterparts in the S&P 500 Index, while the technology-heavy Nasdaq Composite Index posted solid gains. The “traditional economy” Dow Jones Industrial Average (Dow), however, took a bit of a breather and ended modestly higher. Still, the Dow did enter bull market territory on the final day of November, when it closed more than 20% above the low it hit in September 2022. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:                

1.     Strong jobs. Nonfarm payrolls report on Friday shows the U.S. economy added 263k jobs, more than the 200k expected and largely on par with October's upwardly revised pace. Strong November jobs report complicates the Fed's efforts. While this strength is good news for the economy, it was interpreted as bad news for the markets because it implies that the Fed is having little impact on slowing wage growth.

 

2.     Inflation. Last week the PCE Price Index, the Federal Reserve's preferred gauge of inflation, fell to 5.0% from 5.2% a year ago in October and increased 0.2% from the previous month, less than expected. Together with the cooler consumer price index (CPI) data reported three weeks ago and the disinflationary signals from several leading indicators of prices that we track, they suggest that inflation could fall back sharply over the course of 2023.

 

3.     Rate hikes. Powell says pace of tightening could slow but reiterates rates likely to be higher for longer. The likely stepdown to a 0.5% rate hike at the Fed's next meeting on December 13-14 was signaled earlier by the minutes of the November meeting, and the market was already pricing in that outcome. While it has been a long and painful way as interest-rate expectations kept adjusting higher throughout the year, there now seems to be some light at the end of the Fed's tightening tunnel, and market expectations for the peak fed funds rate have stabilized around 5% (even after the strong jobs data).

 

4.     Chinese economy implication. The recent headlines of covid-19 policies seem to be moving in the right direction, and Chinese stocks were sharply higher in November on reopening hopes.  The tweaks to zero-COVID-19 policy, combined with additional measures to support the property market and easing monetary policy, all signal that China is starting to put more emphasis on growth. A potential stabilization in China's economic outlook and a softening of the U.S. dollar as the Fed dials down its rate hikes could prove to be tailwinds for international investments in 2023.

 

SPX sectors in play

10 out of 11 sectors in the S&P 500 ended green this week. Growth stocks outperformed their value counterpart. Communication Services(XLC) and Consumer Discretionary(XLY) were top sectors, while Financials(XLF) and Energy(XLE) lagged. Refer to below SPX sector indexes weekly performance table.  

Indexes technical levels

Technically, DJI index was in its 4^th weekly gains streak, has since rebounded more than 20% from its Sep 2022 low, considered as entered bull market territory technically. Both Nasdaq and SPX were closed 2^nd weekly gain. It’s worth noting the SPX index is approaching major downtrend line drawn from its peak in Jan, a bullish sign if it can cross over above it. 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 amid signs that the Fed would slow the pace of interest rate hikes and that Beijing was moving closer to fully reopening the economy after months of pandemic controls. The Shanghai Composite Index gained 1.8%, while Hong Kong’s Hang Seng Index rallied 6.3%.

SSE weekly chart

.HSI weekly chart 

Beijing eases quarantine measures following unrest. Signs that China was edging away from its zero-tolerance approach to the coronavirus lifted sentiment. China’s National Health Commission announced that it will boost vaccination rates among the elderly, a move seen as crucial for the economy to fully reopen. Days later, China’s most senior official in charge of the coronavirus response, Vice Premier Sun Chunlan, said that efforts to combat the virus were moving to a “new phase” as the omicron variant weakens and more people are vaccinated, state media reported. Beijing also plans to start allowing low-risk infected individuals to isolate from home rather than in government quarantine sites, Bloomberg reported, citing unnamed officials.

PMIs disappoint. PMI readings for manufacturing and nonmanufacturing weakened in November. The private Caixin China General Manufacturing PMI rose more than expected to 49.4 from October’s reading. However, the measure remained under 50, indicating contraction as coronavirus outbreaks curtailed manufacturing activity nationwide.

Singapore

STI index edged higher 0.45% for the week, but still trapped within its four-week trading range- in sideway consolidation. With a month left in 2022, the STI index is up about 4.4% YTD. As comparison, Malaysia’s KLCI is down about 5%, the SPX is down about 14%, Nasdaq down about 27%, Hang Seng Index down about 10% and Shanghai Composite Index has lost about 13%.

Technically, the STI index is currently trading above all major moving averages which is bullish, immediate resistance level to watch is at around 3300-3340 area. And downside support at around 3230 level.

STI weekly chart

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