Inflation and Rate Hikes Erase Nearly All of 2023’s Gains

Weekly Wrap Content for the week of Mar 10:

1. Week 10 major indexes performance;

2. Week 10 US sector indexes performance;

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

U.S.

For the week ended Mar 10, 2023, major U.S indexes pulled back sharply, as investors absorbed more tough talk from Federal Reserve Chair Jerome Powell and signs that he and his fellow policymakers still had work to do in cooling inflation and the hot labor market. The S&P 500 Index fell on Friday to its lowest intraday level since January 5, that has left the index slightly in positive territory for the year. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    Higher than expected rates to be hiked. Fed Chair Powell on Tuesday testified before Congress that policymakers were prepared to speed up the pace of tightening and raise rates higher than anticipated if inflation maintains its current trajectory. He noted that the process of getting inflation down to the Fed’s long-term 2% target will likely be bumpy, referring to a broad reversal of the disinflationary trend in January, while adding that stronger recent economic data suggest the ultimate level of interest rates may be higher than expected. Markets ratcheted up expectations for the peak fed funds rate, shifting to an expected range closer to 5.5%-5.75%. 

2.    Jobs growth remains strong. Friday’s closely watched non-farm payrolls showed an increase of 311k nonfarm jobs in Feb, well above consensus expectations of around 200k. The unemployment rate rose unexpectedly, however, from a January five-decade low of 3.4% to 3.6%. 

3.    A bank failure. SVB Financial, or Silicon Valley Bank(SVB) was shut down following losses in its asset portfolio and an inability to access necessary funding to maintain adequate capital -- marking the second-biggest bank failure in U.S. history, according to The Wall Street Journal. Concerns grew and spread quickly to other financials throughout the week, financials sector led the declines within the S&P 500.

SPX sectors in play

All 11 sectors within the SPX index closed in red for the week. Financials(XLF) led the declines and contributed to the pronounced weakness in value stocks. Small-caps underperformed large-caps, while value stocks fell more than their growth counterparts, pushing the Russell 1000 Value Index into negative territory for the year-to-date period. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

All the three indexes closed below all major moving averages i.e 20/50/100/200dma, selling may have been accelerated by the index going below both its 100-day and 200-day moving averages—metrics followed by technical traders. Refer to below indexes weekly charts.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China stocks retreated as signs of weakening demand and a lower-than-expected 2023 growth target unveiled by Beijing tempered concerns about the country’s outlook. The Shanghai Stock Exchange Index(SSE) declined 2.95%, the worst weekly loss in more than two months, and the blue chip CSI 300 fell 3.96%. In Hong Kong, the benchmark Hang Seng Index(.HSI index) plummeted 6.07%, its biggest weekly loss in over four months.

Key highlights for the week and outlook for China/HK:

1.    China’s GDP target 2023 lower than expected. Beijing set an economic growth target of around 5% this year at the National People Congress (NPC), China’s parliament, which started Sunday, March 5, and ends Monday, March 13. The target lagged most forecasts but represents a recovery from 3% growth last year, when coronavirus lockdowns, an ailing property sector, and weakening export demand led to China’s lowest economic growth in decades. 

2.    Feb CPI Surprise to the downside.  China reported that its consumer price index rose 1% in February from a year earlier, trailing forecasts, down from a 2.1% rise the previous month. Core inflation rose 0.6% in February from 1% in January, while producer prices also fell more than expected due to lower commodity costs. The latest data affirmed that China’s inflation remains muted, unlike in the U.S. and Europe, and raised expectations that the central bank would maintain its supportive policy stance.

Technically, Hang Seng Index(.HSI) dropped 6.07% this week, its biggest weekly loss in over four months. And SSE index was down 2.95%, biggest loss in over two months.

SSE weekly chart

.HSI weekly chart

Singapore

STI index declined six weeks in a row, trading below all its major moving averages, and it faded the previous gap support between 3180-3211 area. The recent pull back has given back more than half of its gains from Oct 21 bottom to Jan 30 peak. Immediate technical support at around 3240-its 61.8% Fibonacci level.

STI weekly chart

Source: Some contents and data excerpted from various public market reports.