Market Commentary

US stock market stays resilient; Asian sentiment dips on China’s virus measures

• US stocks hit record highs again as a strong earnings season continued to lift sentiment for equities, while investors looked ahead to tomorrow’s outcome of a critical Federal Reserve meeting. The S&P 500 and Nasdaq notched record closing highs for a fourth straight session, while the Dow Jones Industrial Average posted its third straight record close and ended above 36,000 for the first time. This is the third session in a row that all three major averages closed at a record.

• The earnings season overall is turning out to be much stronger than anticipated. While many companies are warning that supply restrictions are a problem, most have nonetheless been able to raise prices, maintain strong profit margins, and take full advantage of healthy demand with greater sales results. Fears of overwhelming profit margin erosion simply did not happen. As of Tuesday’s close, 83% of S&P 500 companies that have reported earnings have topped analysts’ earnings expectations, according to FactSet.

• Treasury two-year yields joined a global slide in short-term rates. The gyrations in short-term yields extend a period of heightened bond-market volatility as investors anticipate how hawkish central banks might become to quell inflationary pressures.

• European stocks traded little changed near a record high as investors weighed earnings results against concerns over Covid-19’s resurgence and swelling equity valuations. The Stoxx Europe 600 Index closed up 0.1%, led higher by staple goods and health care. Miners were the worst performers as iron ore futures extended losses on shrinking steel output in China.

• Asian stocks dipped, led by Chinese shares on concerns about the impact of measures to curb Covid-19 infections, while financials underperformed ahead of key central bank decisions this week.

• Sentiment turned sour after authorities in Beijing halted classes at 18 schools amid Covid-19 resurgence. China’s benchmark CSI 300 Index fell 1%, while Hong Kong’s Hang Seng Index reversed an earlier gain of 1.9% to close in negative territory.

• A statement from China’s government urging local authorities to ensure there was adequate food supply during the winter and encouraging people to stock up on some essentials prompted talk online, with the Ministry of Commerce later trying to calm concerns. The speculation linked the appeal to a widening virus outbreak amid increased mobility curbs.

• Tokyo’s Nikkei 225 slipped 0.4%, paring Monday’s gains after a rally cheering weekend election results.

• Singapore stocks bucked the regional trend, drawing comfort from the previous night’s Wall Street performance. The benchmark Straits Times Index rose 0.4% to finish Tuesday at 3,232.37.

• A gradual exit by the Federal Reserve from quantitative easing, together with real interest rates in negative territory, will be broadly supportive of risk assets. We remain overweight on US equities as earnings outlook remains robust.