Stocks End Higher While Rate Cut Expectations Fading

Weekly Wrap Content for the week of Jan 19:

1. Week 3 major indexes performance;

2. Week 3 US sector indexes performance;

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

U.S.

For the week ended 19 Jan, U.S three major indexes ended mostly higher over the holiday-shortened week, although the advance was narrow—an equally weighted version of the S&P 500 Index recorded a modest loss—and heavily focused on growth stocks. Refer to major indexes’ weekly performance table below.

Key highlights for the year and outlook:

1.    U.S Q4 GDP will be released on Jan 25, which could offer a clue on the direction of economic growth and consumption coming into the new year. Expectations are for GDP growth to fall from 4.9% annualized to around 2.0% in the fourth quarter. 

2.    PCE and Core PCE inflation data on Jan 26. The inflation data thus far in 2024 has been more mixed. The CPI (consumer price index) inflation figures have surprised to the upside, while the PPI (producer price index) inflation data have surprised to the downside. Next key datapoint for inflation will be PCE (personal consumption expenditure) inflation, which will be released on January 26 and is often considered the Fed's preferred inflation measure. Expectations are for headline PCE inflation for December to remain flat at 2.6% YoY, while core PCE inflation is expected to fall from 3.2% to 3.0%. Fed target for PCE is 2.4% in 2024. 

3.    FOMC meeting Jan 31. The expectation is for the Fed to keep interest rates on hold at 5.25% - 5.5% at the January meeting, but investors will be listening intently for any clues on whether the Fed is considering an interest-rate cut at the March meeting. Expectations for rate cuts in 2024 fell sharply over the week, with futures markets pricing only a 13.1% chance of seven or more rate cuts in 2024 as of the close of trading on Friday versus 61.5% the week before, according to the CME FedWatch Tool.

SPX sectors in play

Five out of the 11 sectors in SPX closed with weekly gains. Information technology stocks(XLC) and Communication Services(XLC) outperformed, helped by a rally in semiconductor shares. Artificial intelligence (AI) chip giant NVIDIA was particularly strong, as was rival Advanced Micro Devices (AMD).  While Energy stocks(XLE) lagged. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

All three indexes hit new highs this week. 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 slumped as the latest indicators underscored the weak outlook for the economy. The Shanghai Composite Index(SSE) fell 1.72%,  its eighth weekly drop in the past nine. While blue chip CSI 300 gave up 0.44%, its ninth weekly drop in the past 10 weeks. In Hong Kong, the benchmark Hang Seng Index plunged 5.76%. (Refer to the above weekly performance table).  

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

1.    China’s GDP expanded 5.2% in the fourth quarter over a year earlier and for the full year of 2023, meeting Beijing’s official annual growth target. On a quarterly basis, the economy grew 1.0%, up from the third quarter’s 0.8% expansion. 

2.    In monetary policy news, the People’s Bank of China (PBOC) injected an above-forecast RMB 995 billion into the banking system via its medium-term lending facility, but left the lending rate unchanged, disappointing traders. Nevertheless, many analysts predict that the PBOC will loosen policy this year and could cut its reserve requirement ratio to boost demand. 

3.    China’s new home prices fall at steepest pace in almost nine years. New home prices fell 0.4% in December, down from November’s 0.3% decline, marking the sixth consecutive monthly drop and the fastest fall since February 2015, according to the statistics bureau.

Click below title to view weekly charts.

SSE weekly chart

.HSI weekly chart

Singapore

STI fell 1.24% in the week. Technically the local index has been sideways trading between its 200 and 50dma range over past two weeks. Only five out of 30 STI index stocks closed with weekly gains. YZJ was the top gainer with 3.14% up, HKland was the worst performer with 6.29% down.

STI weekly chart

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