Market update for the week of May 20, 2022

This week S&P 500 fell 3.1%, which featured disappointing corporate updates and economic data that stoked growth concerns. The Nasdaq Composite underperformed with a 3.8% decline, followed by the Dow Jones Industrial Average (-2.9%) and Russell 2000 (-1.1%). Investors were worried about the U.S. inflation as there is no sign of cooling down from the latest April CPI figure. High inflation is clearly weighing on consumer confidence and offers little hope that the Fed will move away from its hawkish view on rate hike. Both headline CPI and core CPI came in above expectations at 0.3% m/m and 0.6% m/m, respectively. While declines in energy prices led a moderation in headline CPI, core inflation accelerated as air fares, new vehicle prices and shelter costs rose solidly. Consumer sentiment also fell to a new 11-year low as persistent inflation and weakness in equity markets likely hurt confidence. The S&P 500 is down 20% for the year and trades at 16.6x forward twelve-month earnings. The latter is an 11% discount to the five-year average (18.6) and a slight discount to the 10-year average (16.9), according to FactSet.The stock market is oversold on a short-term basis. It has the potential to wage a powerful rebound effort with investor sentiment being as depressed as it is and cash levels among fund managers being at their highest (6.1%) since 9/11, according to the BofA Global Fund Manager Survey.

Sentiment-driven rallies can be fast and furious, but in the end fundamentals take precedence. The fundamental outlook right now is not good.

In terms of A-shares, the People's Bank of China lowered the LPR of more than 5-year mortgage interest rates by 15 basis points, the largest drop in history, and became another recent measure to stabilize growth. The Shanghai Composite Index rose 2.02% this week to close at 3146.57 points; the Shenzhen Component Index rose 2.64% this week to close at 11454.53 points; the ChiNext Index rose 2.51% this week to close at 2417.35 points. In terms of industry sectors, coal, power equipment, and non-ferrous metals led the gains; track stocks in photovoltaics, lithium mines, wind power, automobiles, and semiconductors rebounded in an all-round way, while pharmaceuticals and biology closed down weakly. The net inflow of northbound funds was 32.355 billion yuan. In terms of Hong Kong market, the volatility was still relatively large during the week even though its enjoy a broader rebound thanks to the A share market. The Hang Seng Index and the Hang Seng China Enterprises Index rose by 4.11% and 4.62% respectively, and the Hang Seng Technology Index rose by 6.08%. The top ten gainers in the Hang Seng Index this week were mainly concentrated in the industrial and real estate construction sectors. Among them, the top three stocks with weekly gains were Sunny Optical Technology, BYD and Country Garden, with weekly gains of 20.23%, 13.24% and 13.12% respectively.

Things to watch next week:

In the US

On May 26, market should focus on initial jobless claim, GDP revision and the Federal Reserve's FOMC will release the minutes of its May monetary policy meeting.

On May 27, the core PCE price index in the United States in April will be release.

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