Nasdaq Near Bear Market Territory Due to Concerns of Bond Yield and War

Weekly Wrap Content for the week of Oct 20:

1. Week 42 major indexes performance;

2. Week 42 US sector indexes performance;

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

U.S.

For the week of 20 Oct, U.S three major indexes declined as geopolitical concerns, tough talk from Federal Reserve officials, and a rise in long-term bond yields to new 16-year highs appeared to weigh on sentiment. The S&P 500 Index recorded its biggest weekly decline in a month. The Nasdaq Composite Index fared worst among the major benchmarks and nearly moved back into bear market territory, ending the week 19.91% below its early-2022 intraday highs. Refer to major indexes’ weekly performance table below.

Key highlights for the week and outlook:

1.    Geopolitical concerns. Deepening tensions in the middle east later in the week appeared to affect market sentiment. Shares fell sharply on Thursday afternoon, following reports that a U.S. Navy destroyer had shot down a cruise missile apparently headed toward Israel. Reports of a drone attack on a U.S. base in Iraq also seemed to weigh on sentiment. 

2.    Bond yield hit 16 years high. The yield on the 10-year U.S. Treasury note nearly touched 5% in intraday trading at the end of the week, reaching its highest level since July 2007. Higher yields can increase the cost of borrowing, put downward pressure on stock valuations, and weigh on bond price returns. 

3.    Fed policymakers remain “unconvinced” inflation is tamed. The Wall Street Journal reported that markets pulled back sharply after Powell stated on the Economic Club of New York that he saw no signs that the current stance of Fed policy would push the economy into a recession. 

4.    Economic data surprises may have reinforced worries that rates would remain “higher for longer”. Data release on Tuesday showed retail sales rose 0.7% in October, roughly double consensus expectations. Meanwhile, weekly jobless claims surprised on the downside, falling below 200,000 for the first time since January.

SPX sectors in play

Nine out of the 11 sectors of the SPX index closed negative for the week. Within the index, growth stocks lagged their value counterparts. Energy(XLE) and defensive stocks such as Consumer Staples(XLP) outperformed. Consumer Discretionary(XLY) and Real Estate(XLRE) lagged. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

The three major indexes declined for the week. All three closed at low of their four-week range bottom respectively and lowest since end of May. Notably, SPX closed just beneath its 200dma at 4233 level for the first time since Mar 20 this year. Click below three indexes for their weekly charts respectively in a new window.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

 

China/HK

Stocks in China fell sharply as deepening property sector woes offset optimism about a better-than-expected gross domestic product report. The Shanghai Composite Index(SSE) declined 3.44% while the blue-chip index CSI 300 gave up 4.17%, erasing all gains from the reopening rally earlier in the year. In Hong Kong, the benchmark Hang Seng Index fell 3.6% (Refer to the above weekly performance table).  

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

1.    Country Garden, formerly China’s largest property developer, announced that it was unable to meet all its offshore debt payments after it received a 30-day grace period in August. Meanwhile, home price data showed no letup in the ongoing property market slump. New home prices in 70 of China’s largest cities fell 0.3% in September from August, extending declines for the third consecutive month. 

2.    Concerns about China’s property market outweighed a surprisingly strong gross domestic product release, which showed that China’s economy expanded an above-forecast 4.9% in the third quarter over a year earlier, slowing from the 6.3% rise recorded in the second quarter. 

3.    Other data showed that parts of China’s economy may be stabilizing. Retail sales rose a better-than-expected 5.5% in September from a year earlier, up from 4.6% in August. Industrial production growth was unchanged from August, while urban unemployment fell slightly.

Click below title to view weekly charts.

SSE weekly chart

.HSI weekly chart

Singapore

STI index fell 3.42% for the week, marked its worst weekly decline in over two months. The index dropped below 3100 support level and closed at its lowest since 28 Oct 2022. All 30 STI index stocks fell this week. Worst performers were Kep DC Reit and YZJ Ship with 15% and 12% losses respectively.

STI weekly chart

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