iShares MSCI ACWI Ex US Index ETF (ACWX) & SPDR S&P Bank ETF (KBE)

Some of the pressure that has been weighing on equity markets of late has eased a bit in the last week. In particular, US treasury yields have dropped back from near 5.00% toward 4.70%, and the German 10-year yield has dropped back from near 3.00% toward 2.70%. So far, the reaction to an uptick in US producer prices and a hawkish tone in FOMC minutes has been limited, indicating that continuing inflation pressures and neutral to hawkish central banks have been priced in to the markets.

We have seen a bit of a trading bounce for selected equity markets and sectors this week. For the most part this has taken the form of 3-5 box reversals into X columns from O columns in deeply oversold areas and it’s too early to tell at this point if it is the start of a turnaround or a common pause to ease short-term oversold conditions within an emerging downtrend. Crude oil prices rallied initially but have quickly dropped back again, particularly since Saudi Arabia and its OPEC+ partners indicated they intend to continue working to keep energy markets stable. Meanwhile, Gold has rebounded as a defensive haven along with Silver, while the more economically sensitive Copper and Platinum continue to struggle.

International Equity action has been mixed this week. Some of the resource-sensitive countries have staged trading bounces such as Canada, Australia, the UK, Mexico and South Africa, along with Japan. Other countries, both developed and emerging markets, such as Germany, France, Spain, China, Taiwan, and South Korea, have remained under pressure.

Sector action has also been split this week. Some of the groups which have staged moderate rebounds include the interest rate sensitive and perhaps oversold Utilities, Real Estate and Financials. Other groups bouncing back include Energy, some parts of technology (semiconductors and social media in particular), homebuilders and aerospace. Sectors which remain under pressure include Materials (miners, steelmakers and agricultural products), Transportation, Leisure and Retailers.

This week, focus turns to earnings season where the rubber hits the road starting on Friday with several major banks reporting. Next week, investment bank and regional bank results roll out as well plus Consumer Staples giants, Airlines, Railroads and other senior US stocks. In addition to how companies fare relative to expectations, guidance may be particularly scrutinized in light of how companies are faring in a rising cost, rising interest rate, and rising US Dollar environment.

In this edition of Equity Leaders Weekly, we look at recent trends in international equity markets and at the US banking sector heading into its earnings week.

Since the start of the summer, International Equity has been sliding back down in the SIA Charts Asset Class rankings. Although sentiment was split over the last week, recent action in the iShares MSCI ACWI Ex US Index ETF (ACWX) highlights how support for international equities has weakened significantly in recent months.

After declining for nearly 18 months between the summer of 2021 and the fall of 2022, ACWX staged a big breakout rally between November of 2022 and February of 2023, after which, the ETF continued to trend upward at a more moderate pace. Back in August, ACWX topped out short of trend resistance and well below of its previous peak. Since then, it has become increasingly clear that international equity markets have come under distribution, particularly since ACWX completed bearish Double Bottom and Spread Double Bottom breakdowns to signal a downturn.

Next potential support for ACWX appears at a previous column low near $44.85, followed by $42.65 based on a horizontal count, and uptrend support near $41.65. Initial resistance on a rebound appears near $48.10 based on a 3-box reversal.

Investors should note that this downturn has taken place across both developed (SPDW) and emerging markets (EEM), indicating that this is a broad based retreat, and that concern about the health of the global economy increasingly appears to be weighing on equities.

After selling off earlier this year when several regional banks ran aground, US banks, represented here by the SPDR S&P Bank ETF (KBE) bounced back through much of the summer. In August, however, KBE faltered short of a downtrend resistance line and sold off into early October. Although KBE has bounced back, it remains at a potentially key technical turning point heading into earnings season which starts tomorrow and runs through next week.Bank earnings tend to attract a lot of attention from investors not only because they are large, but because they have exposure to many sectors of the economy. This time around, in addition to revenues and earnings, traders may focus on changes in loan loss provisions for indications on the health of how the consumer finances the overall economy and whether or where the significant increase in interest rates over the last year has led to financial stresses. From this, bank results may set the tone for the upcoming earnings season across a number of sectors.

If KBE continues to rebound, this could be an encouraging sign for overall market sentiment that perhaps the recent correction has run its course.

If KBE turns down again or breaks down below $35.00 it could be seen as a bearish sign not just for the sector, but potentially for the broader market. That would complete a double bottom and snap an uptrend line with next potential support at previous lows near $34.30, then $31.10. Initial upside resistance appears near $37.55, and then $39.85 based on previous column highs.