Fed Cuts Rates for First Time in Over Four Years, Stocks Hit New High

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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 of Sep 20, major U.S. indexes moved to record highs as investors celebrated the kickoff to what many expect to be a prolonged Fed rate-cutting cycle. The rally was also relatively broad, with the smaller-cap indexes outperforming, the small-cap Russell 2000 Index, in particular, ended the week roughly 9% below the all-time high it established in November 2021. Refer to below major indexes weekly performance table.

Key highlights for the week and next:

1.    First rate cut to start easing cycle. After the most aggressive tightening campaign in 40 years and the second-longest pause in history with rates in restrictive territory, the Fed cut its policy rate last week for the first time in four years. Instead of the typical quarter-point move (0.25%), the Fed opted to lower rates by a larger half a percentage point (0.5%), taking the policy target range down to 4.75%-5.0% from 5.25%-5.5%. 

2.    Yield curve normalises. The 10-year yield's premium to the 2-year yield is now around 15 basis points. The yield curve is important because an inverted yield curve is an indication of a recession. This time round, the economy has not - to-date - gone into a recession. The normalisation of the yield curve is indicative of normal economic conditions. As to whether a recession has been averted completely or contained, that remains to be seen.   

SPX sectors in play

Eight out of the 11 SPX sectors closed with gains for the week. The rally was also relatively broad, Energy(XLE), Financials(XLF), Communication Services(XLC) and Consumer Discretionary(XLY) were among the top gainers, while the smaller Real Estate(XLRE) and Consumer Stapler(XLP) lagged. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

Both Dow(DJI) and SPX indexes closed new records, while Nasdaq Composite(COMP) is about 4% away to its peak. Click below three indexes for their weekly charts.  

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

 

China/HK

China stocks rose in a holiday-shortened week as the Fed’s decision to cut interest rates offset a batch of disappointing economic data. The Shanghai Composite Index(SSE) gained 1.21% and the blue chip CSI 300 added 1.32%. In Hong Kong, the benchmark Hang Seng Index gained 5.12%. (Refer to the above weekly performance table). Markets in mainland China were closed Monday and Tuesday for the Mid-Autumn Festival. Hong Kong markets were closed Wednesday but reopened Thursday.

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

1.    August data underscored the slowing momentum in China’s economy. Industrial production rose 4.5% from a year earlier, lagging forecasts and down from July’s 5.1% increase amid weaker commodity prices and auto sales. Retail sales expanded a below-consensus 2.1% from a year ago, easing from July’s 2.7% rise. Fixed asset investment rose a lower-than-expected 3.4% in the January to August period, down from the 3.6% expansion recorded in the first seven months this year, while property investment fell 10.2% year on year. 

2.    China’s urban unemployment rate unexpectedly edged up to 5.3%, a six-month high, from 5.2% in July. The property sector, now in its fourth year of a downturn, showed no sign of a letup. New home prices in 70 cities fell 0.7% in August, according to the National Bureau of Statistics, unchanged from the pace of declines in the prior three months and marking the 14th consecutive monthly drop. 

3.    Taken together, the indicators suggested growing risks for Beijing in meeting its economic growth target of about 5% this year. As a result, many economists expect that China’s government will implement further easing measures to stimulate the economy. The start of the long-awaited U.S. interest rate cuts is also expected to give policymakers more room to cut rates in the coming months.

Click below SSE and .HSI indexes for their weekly charts. 

SSE weekly chart

.HSI weekly chart

Singapore

STI index closed to new record on its marvellous 6^th consecutive weekly gain. Blue chip industrials and banks led the rally. 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.