Stocks Mixed Again As Rotation Continues

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Main Content:

1.    Major indexes weekly performance 

2.    U.S stocks weekly wrap 

3.    S&P 500 sector index weekly performance 

4.    China/Hong Kong stocks weekly wrap 

5.    Singapore stocks weekly wrap 

6.    Major indexes weekly chart and technical support & resistance levels

U.S.

For the week ended Jul 26, major U.S. indexes recorded mixed returns for the second consecutive week. Small-cap and value shares continuing to outpace the large-cap growth stocks that have led the market over much of the year. At the close of trading on Thursday, the technology-heavy Nasdaq Composite 100 Index(NDX) was lagging the broader S&P 500 Index(SPX) and barely outperforming the small-cap Russell 2000 Index(RUT) for the year to date, before large-cap growth shares rebounded to close the week. 

The week was also notable for the SPX selling off on Wednesday by more than 2% for the first time since February 2023, while the Nasdaq suffered its worst loss since October 2022. The Dow Jones Industrial Average (DJI) had a particularly strong close, as industrial conglomerate 3M Co. (MMM) rocketed higher after delivering expectations-beating quarterly numbers. Refer to below major indexes weekly performance table.

Key highlights for the week and next:

1.    Q2 earnings underway. We are amid Q2 earnings season, and with about 41% of S&P 500 companies having reported thus far, earnings are on track to grow 9.7% year-over-year, above expectations for 9% growth at the end of the Q1. The largest upside earnings surprises are coming from sectors like financials, energy, and health care, more so than technology and growth sectors. 

2.    A 12.33% decline in Tesla and a 5.03% decline in Class C shares of Google parent Alphabet following earnings reports contributed heavily to Wednesday’s declines. 

3.    Inflation continues to moderate. Core (less food and energy) personal consumption expenditures (PCE) price index reading released in the week rose a tick more than expected (0.2%) in June but stayed steady at an annual rate of 2.6%—not too far above the 2.0% target for the Federal Reserve’s preferred inflation gauge. The inflation data appeared to cement expectations for a Fed rate cut at its September meeting. 

4.    Expecting interest rate cuts. Markets now more meaningfully believe in Fed interest-rate cuts in the back half of the year, with the CME FedWatch tool indicating markets are pricing in three rate cuts: at the September, November and December Fed meetings. 

5.    Presidential election impact on stock market. Last week, Biden made a historical decision to drop out of the presidential election late in the race, and endorsed VP Harris for the job. The betting odds and early polling have shown that it is a much closer race between VP Harris and former President Trump than with President Biden as the candidate. From a market perspective, these moves have increased uncertainty around the election outcome – and markets tend not to like uncertainty. In fact, history shows us that market volatility tends to increase ahead of election day, and then subside afterwards, regardless of who is in power. This could be in part because some uncertainty is lifted after the election is over, and markets can again focus on opportunities ahead.

 

SPX sectors in play

Seven out of the 11 sectors of SPX closed with gains for the week. Markets continued the rotation that began earlier this month, with small-cap stocks and value and cyclical sectors all outperforming mega-cap technology and growth sectors.

Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

DJI index closed its 4^th weekly up in a row, Nasdaq and SPX closed 2^nd weekly decline. Nasdaq(COMP) closed below 50dma since early May and SPX tested its 50dma and closed just above it. Click below three indexes for their weekly charts.  

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China stocks fell after unexpected rate cuts by the central bank failed to instill confidence in the economic outlook. The Shanghai Composite Index(SSE) declined 3.07% and the blue chip CSI 300 was down 3.67%. In Hong Kong, the benchmark Hang Seng Index retreated 2.28%. (Refer to the above weekly performance table).

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

1.    China’s central PBoC cut its medium-term lending facility (MLF) by 20 basis points to 2.3%, its first reduction since August 2023, after holding the rate steady at its regularly scheduled operation on July 15. The move came on Monday, after the central bank reduced its seven-day reverse repo rate, a key short-term policy rate, by 10 basis points to 1.7%. Shortly afterward, Chinese banks cut their one- and five-year loan prime rates by 10 basis points to 3.35% and 3.85%, respectively, making it cheaper for consumers to take out mortgages and other loans. 

2.    A lack of significant policy initiatives following the Third Plenum, a once-in-five-year meeting of top officials in the ruling Communist Party, also contributed to bearish sentiment. During the three-day meeting that ended July 18, President Xi Jinping vowed to make “high-quality development” the main priority for China but provided no detailed policies, disappointing those who hoped for measures to bolster consumption and end a yearslong property slump.

SSE weekly chart

.HSI weekly chart

Singapore

STI index lost another 0.61% in its 2^nd consecutive weekly loss, but it appears the selling much under control, nothing panic. The index just closed below its 20dma for the first time in a month and still way above its 50dma at around 3370 level which indicate uptrend is well intact.

Refer to below index stocks weekly performance.

Click below for STI weekly chart.

STI weekly chart

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