Weekly Commentary: 29 November 2021 – 05 December 2021
Stocks declined for the holiday-shortened week after Friday’s news that a new and potentially more transmissible coronavirus strain than the delta variant had emerged in South Africa. Riskier assets such as equities experienced sharp sell offs and a rally in safe havens such as Treasuries. The price of West Texas Intermediate crude oil, the U.S. benchmark for the commodity, plummeted more than 10% on Friday on fears that the new variant will damage demand for oil. Growth stocks as loosely represented by the NASDAQ Composite Index returned -3.52% within the week. In comparison, the S&P 500 saw a 2.18% decline, its worst day since late February and third worst decline of the year. All 11 S&P 500 sectors closed in negative territory, ten of which fell between 1.4% (consumer staples) and 4.0% (energy). The health care sector outperformed on a relative basis with a 0.5% decline due to strength in vaccine makers likes Pfizer (PFE 54.00, +3.11, +6.1%) and Moderna (MRNA 329.63, +56.24, +20.6%). Stay-at-home stocks like Zoom Video (ZM 220.21, +11.91, +5.7%) also posted decent gains. DJIA performed the best with a 1.95% loss. Closer to home, the STI dipped 2.04% in contrast with the Hang Seng’s loss of 3.83%.
The yield on 10y note recorded its biggest one day (16bp to close around 1.47%) drop since March 2020. Moves were amplified by liquidity and positioning for a hawkish shift. The probability for a rate hike in May 2022 decreased to 36.4% from 55.3% on Wednesday, and the probability for a rate hike in June 2022 decreased to 61.8% from 82.1% on Wednesday. For an abbreviated trading session, volumes were massive, with ~9bn shares trading during the short trading week. This was reflected by the move in the CBOE Volatility Index (VIX) as it increased by 54% to 28.6. Appropriately, the fed-funds-sensitive 2-yr yield was down 12 basis points to 0.52% after rising 13 basis points over the prior three sessions. The U.S. Dollar Index fell 0.7% to 96.11.
The global REIT markets reported negative returns with the exception of Australia, Tokyo, France and Germany. But the overall 12-month yield spreads remained positive (with the exception of Malaysia) and still favorable towards REIT’s forward total return. Back at home, the iEdge S-REIT Index dipped 0.25% over the week on fears that the new covid variant could dial back on reopening plans.
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