Stocks Continue Decline On Geopolitical and Interest Rate Concerns

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Key takeaways:

1.    The S&P 500(SPX) is down about 5.5% from recent highs, while the Nasdaq(COMP) is down around 7%, after a 28% rally in the S&P 500 over the past six months, a period of consolidation or some profit-taking was expected. 

2.    Corrections in the 5%-15% range are typical in any given year if not into a deep bear-market( with 20% or more losses). 

3.    Market expectation of Fed rate cuts reduced to one cut in 2024 from the six that were priced in at the start of this year. 

4.    Q1 earnings season is underway, mega-cap technology firms, including Microsoft, Google, and Meta will all be reporting earnings next week, with investors closely watching for signs of any weakness.

U.S.

For the week ended Apr 19, stocks recorded their third consecutive week of broad losses, as concerns over tensions in the Middle East and the possibility of U.S. interest rates remaining “higher for longer” appeared to weigh on sentiment. Both the SPX and COMP indexes fell a sixth-straight day, pushing SPX below 5000 on its weakest stretch in 18 months. The COMP ended at a three-month low. Mega-cap technology shares lagged as rising rates placed a higher theoretical discount on future earnings. Refer to below major indexes monthly performance table.

Key highlights for the week and next:

1.    Oil and commodity prices move slightly below recent highs as hopes rise for easing geopolitical tensions. WTI oil retreating to $82 per barrel from $87 (a high for the year) two weeks ago. However, spot gold price still very bullish, recorded its five-weeks gain nearly $2400 per ounce. 

2.    Fed signals rate cuts will wait in response to data. On Tuesday, Fed Chair Jerome Powell stated at an economic conference that “recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.”  U.S treasury yields have moved higher as market expectations of Fed rate cuts have decreased. 

3.    Magnificent 7 stocks have corrected 8.4% as compared to SPX’s 5.5% retreat from recent highs. Magnificent 7 represented by Apple, Amazon, Alphabet, Meta Platforms, Microsoft, NVIDIA and Tesla. 

4.    Q1 earnings season is underway, mega-cap technology firms, including Microsoft, Google, and Meta will all be reporting earnings next week, with investors closely watching for signs of any weakness.

SPX sectors in play

For the week, four out of the 11 sectors of SPX closed positive. Growth and the interest-rate-sensitive parts of the market, including small-cap stocks and the real estate sector(XLRE), have pulled back more. Tech(XLK) and Consumer Discretionary(XLY) lagged. While Utilities(XLU) outperformed. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

SPX and COMP indexes declined for 3^rd week in a row, SPX back to its 20 weekly MA support level and COMP already dropped below it. SPX and COMP have pullback 5.5% and 7% respectively from their recent highs. The Magnificent 7 declined 8.4% from recent highs. The DJI index closed almost flat after two-week down. Click below three indexes for their weekly charts.  

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China stocks rose after the economy expanded more than expected in the first quarter.  The Shanghai Composite Index(SSE) gained 1.52%, while the blue chip CSI 300 added 1.89%. In Hong Kong, the benchmark Hang Seng Index gave up 2.98%. (Refer to the above weekly performance table).

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

1.   China’s gross domestic product expanded an above-consensus 5.3% in the first quarter from a year ago, accelerating slightly from the 5.2% growth in last year’s fourth quarter. On a quarterly basis, the economy grew 1.6%, rising from the fourth quarter’s 1.4% expansion.

2.    The People’s Bank of China injected RMB 100 billion into the banking system via its medium-term lending facility compared with RMB 170 billion in maturing loans and left the lending rate unchanged, as expected.Hang Seng Index stocks top weekly gains: ENN Energy(2688) +10.37%; China Hongqiao(1378) +9.28%;   

3.    China’s new home prices fell 0.3% in March, matching February’s 0.3% drop and extending losses for the ninth consecutive month, according to the statistics bureau.

Hang Seng Index component stocks weekly return(click on picture to enlarge):

Click below title to view weekly charts.

SSE weekly chart

.HSI weekly chart

Singapore

STI index closed on its 3^rd weekly decline with 1.26% loss this week. The index has been hovering around its 50dma and 200dma 3180 level last week. Immediate technical support 3140 and resistance 3200.

STI Index component stocks weekly return(click on picture to enlarge):

STI weekly chart

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