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S&P 500 Fall May Lead APAC Stocks Lower, Tech Earnings in Focus

S&P 500 Fall May Lead APAC Stocks Lower, Tech Earnings in Focus

Margaret Yang, CFA, Strategist

S&P 500, NIKKEI 225, ASX 200 WEEKLY OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 indexes closed -1.30%, -1.89% and -2.75% respectively
  • Microsoft, Tesla and Apple will report earnings this week, which will set the tone for the broader market
  • The FOMC meeting and US core PCE price index will also be closely monitored

US Tech Earnings, FOMC, Core PCE - Asia-Pacific Week-Ahead:

Wall Street stocks had their worst week in more than a year, with the S&P 500 index, Dow Jones and Nasdaq 100 falling -5.7%, -4.8% and -7.5% respectively. This may be attributed to inflationary concerns, some weaker-than-expected corporate earnings and worries about a faster pace of Fed tightening. Netflix’s share price tumbled 22% after it forecasted a much slower pace of subscriber growth in the coming quarter, underscoring a tougher environment for tech companies. Previously, several large US banks such as JPMorgan, Citigroup and Goldman Sachs highlighted rising expenses and the negative impact on their earnings.

Against this backdrop, investors are probably more cautious about the outlook for the US market, especially the rate-sensitive tech sector. This week’s FOMC meeting and core PCE inflation data will test stocks again, as investors scrutinize the Fed’s view on price pressures and the roadmap for tightening. Several Fed members have expressed hawkish-biased opinions earlier this months, underscoring the urgency to contain rising price levels. The core Personal Consumption Expenditure (PCE) price index is a key inflation gauge that the Fed looks at to decide policy. The reading is expected to hit 4.8% YoY in December, the highest since 1982.

On the earnings front, investors are bracing for the peak of the reporting season, with around 22% of the S&P 500 companies announcing Q4 results this week. Those include tech giants Apple, Microsoft and Tesla. While robust demand is expected for Apple and Tesla’s products, supply-chain challenges may undermine their ability to fulfill orders. Click here for a preview.

Major US Corporate Earnings This Week

S&P 500 Fall May Lead APAC Stocks Lower, Tech Earnings in Focus

Source: Bloomberg, DailyFX

APAC markets look set to kick off the week on the back foot, with futures in Japan, Australia, Hong Kong and the rest of the region trading lower at open.

Australia’s ASX 200 index may be vulnerable to selling as the IHS Markit Australian Composite PMI unexpectedly plunged to 45.3 from 54.9 a month ago. This marks a sharp contraction of the country’s service sector due to the impact of the Omicron variant of Covid-19, although manufacturing PMI remains in expansionary territory.

For the week ahead, Wednesday’s FOMC meetingdominates the economic docket alongside Friday’s core PCE Price Index. A slew of Markit PMI readings from Australia, German, the UK, Eurozone and the US will also be monitored on Monday. Find out more from the DailyFX calendar.

Looking back to Friday’s close, 10 out of 11 S&P 500 sectors ended lower, with 80.4% of the index’s constituents closing in the red. Communication services (-3.88%), consumer discretionary (-3.10%) and materials (-2.49%) were among the worst performers, whereas consumer staples (+0.02%) registered a small gain.

S&P 500 Sector Performance 21-01-2022

S&P 500 Fall May Lead APAC Stocks Lower, Tech Earnings in Focus

Source: Bloomberg, DailyFX

S&P 500 Index Technical Analysis

The S&P 500 index may have entered a meaningful correction after breaching below an “Ascending Channel” as highlighted on the chart below, opening the door for further losses. Prices also broke an immediate support level of 4,470 and exposed the next support level of 4,300 (previous low) and then 4,200 (161.8% Fibonacci extension). The MACD indicator is trending lower, underscoring bearish momentum.

S&P 500 Index – Daily Chart

S&P 500 Fall May Lead APAC Stocks Lower, Tech Earnings in Focus

Chart created with TradingView

Nikkei 225 Technical Analysis:

The Nikkei 225 index breached below a “Symmetrical Triangle” pattern and thus opened the door for further losses. This suggests that prices are heading south after a few months of consolidation. An immediate support can be found at around 26,900 – the previous low in August 2021. The MACD indicator formed a bearish crossover and trended lower, suggesting that near-term momentum remains weak.

Nikkei 225 Index – Daily Chart

S&P 500 Fall May Lead APAC Stocks Lower, Tech Earnings in Focus

Chart created with TradingView

ASX 200 Index Technical Analysis:

The ASX 200 index breached below the floor of a range-bound zone between 7,200 to 7,500, exposing the next support level of 7,080. The floor of the range may now be viewed as immediate resistance level. The overall trend has now become bearish-biased after the formation of a long bearish candlestick on Friday. The MACD indicator formed a bearish crossover and trended lower, underscoring bearish momentum.

ASX 200 Index – Daily Chart

S&P 500 Fall May Lead APAC Stocks Lower, Tech Earnings in Focus

Chart created with TradingView

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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