Stocks Decline Amid Renewed Tariff Threats on EU

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Main Content:

1.    Major indexes weekly performance 

2.   U.S stocks weekly wrap 

3.    S&P 500 sector index weekly/month 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 May 23, U.S. equities, bonds and the dollar all retreated amid renewed focus on the U.S. budget deficit and rising debt. Fresh tariff threats were also a reminder that trade developments remain in the driver's seat.

The S&P 500 Index(SPX) and Dow Jones Industrial Average(DJI) both fell back into negative territory for the year after ending the prior week slightly positive. The technology-heavy Nasdaq Composite(COMP) held up best but still shed 2.47%. After a near 20% rally in the SPX since the April 7 low, rising bond yields together with fresh tariff threats are now tapping the brakes on investor optimism. U.S. markets will be closed Monday for a public holiday. Refer to below major indexes performance table for the week.

Key highlights for the week and next: 

1.    Moody's became the last of the "Big Three" rating agencies to downgrade U.S. debt. The one-notch downgrade means that the U.S. lost its last triple-A credit rating after Standard & Poor's (S&P) took similar action in 2011 and Fitch in 2023. Meanwhile, Congress is in the process of passing a bill that is expected to push deficits higher for the remainder of the decade. 

2.    The 10-year Treasury yield exceeded 4.5% last week and the 30-year crossed the 5% mark, nearing the highest since 2007. The dollar weakened against major currencies, rising borrowing needs may affect long-term Treasuries more than short-term bonds, steepening the yield curve, as investors require additional yield (a risk premium) to hold long-term debt. 

3.    High deficits. 10 years ago, the federal deficit was $472 billion, or about 3% of GDP. By 2019, the deficit had jumped to $984 billion, or 4.6% of GDP. And last year, the deficit was $2 trillion, or 6.7% of GDP. During this timeframe the S&P 500 has returned 230%, including dividends. The debt-to-GDP ratio could reach a record high of 150% of GDP within the next 10 years. With interest rates still high, interest costs to service the existing debt are becoming a larger burden to the budget. At 3% currently, interest payments on federal debt as a percent of U.S. GDP are matching the highs of the late-1980s and early-1990s. 

4.    Business activity rebounds in May after a pause on additional tariffs. S&P Global’s Flash PMI survey data shows services sector PMI reading jumped to 52.3 in May from 50.8 in April. The Manufacturing PMI also improved, increasing from 50.2 in April to a 3-month high of 52.3 in May. Both readings were better than consensus estimates. 

SPX sectors in play

All 11 SPX sectors recorded weekly losses, Technology (XLK) and Energy(XLE) among the laggards. Refer to below SPX sectors ETF weekly performance table.

Indexes technical levels

The indexes fell back into negative territory for the year after ending the prior week slightly positive. Click below three indexes for their weekly charts.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Mainland China stock markets declined as attention turned back to the economy after Beijing and Washington struck a temporary trade truce. The Shanghai Composite Index(SSE) gave up 0.57% while the blue-chip CSI 300 shed 0.18%. In Hong Kong, the benchmark Hang Seng Index added 1.1%. (refer to the above weekly performance table).

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

1.    A trio of indicators offered the first glimpse of China’s economy following the rapid escalation of trade tensions with the U.S. Industrial output rose a better-than-expected 6.1% in April from a year ago. But retail sales growth, a key consumption barometer, weakened to 5.1% from March’s 5.9% increase, lagging economists’ forecasts. Fixed asset investment—which includes property and infrastructure investment—rose 4% from January to April, trailing estimates, weighed by a steep contraction in property investment. 

2.    The surprising uptick in industrial production suggested that China was able to avert a significant slowdown at the start of the U.S.-sparked trade war in April. However, the decline in retail sales growth supported the view of many economists that Beijing needs to roll out more spending incentives to bolster consumer confidence.

Refer to below .HSI stocks top 40 performance of the week.

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

SSE weekly chart

.HSI weekly chart

Singapore

The Straits Times Index (STI) ledged lower 0.4% to close at 3882.42 point this week, marked its first weekly loss after five consecutive weekly gains. Stock momentum remained relatively muted this week.

Top weekly gainers including SIA, SingTel and ST Enginering, DBS and OCBC were among top gainers as well. Refer to below table for STI index stocks weekly performance.

Click below for STI weekly chart.

STI weekly chart

Source: Some contents and data excerpted from various public market reports. Please comment to claim copyright ownership of any material, and I will remove it if necessary.