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Weekly Outlook

Weekly Outlook for 06 December 2021 – 12 December 2021

Weekly Commentary: 06 December 2021 – 12 December 2021

All of the major indices reported negative returns last week. Growth stocks as loosely represented by the NASDAQ Composite Index fared worst as it fell by 2.60% by Friday. The S&P 500 and the DJIA were trailing behind with a 1.18% and 0.76% slippage each. Both the STI and Hang Seng fell by 2.02% and 1.29% respectively. All S&P 500 sectors delivered negative returns as well with the bottom three performers being Consumer Discretionary (-3.86%), Communication Services (-3.83%), and InfoTech (-2.99%). In the other hand, more defensive sectors such as Utilities (-0.53%), Consumer Staples (-0.83%), and Industrials (-1.17%) held up the best.

The stock market pullback was largely resulted from the fear that the more infectious Omicron COVID-19 strain could halt the global reopening plans and further delay economic growth. Furthermore, current high inflation has been far from transitory and Federal Reserve’s chairman Powell had also stated last week that the Fed may consider tapering bond purchases at faster pace, potentially shorten the timeline for the increase of short-term interest rates. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the inflation rate by the end of October has increased by 0.6% to reach 6.2%, the highest since the 2008 GFC. High inflation usually demands an increase in interest rates and this is not good news for stocks that had been valued very generously.

The yield-curve flattened last week as the U.S. 2-year Treasury yield increased by 9 bp to 0.59% and 10-year decreased by 13 bp to reach 1.34%. The 10Y-2Y US Treasury yield spread decreased to 0.75%, the lowest point of this year so far. Market sentiment was weak overall as the global HY-IG spread contracted by 17 bp to 2.26% while the CBOE Volatility Index (VIX) increased by 205 bp to 30.67%, both are well above their 50-day exponential moving average of 2.06% and 19.98% respectively.

The global REIT markets reported negative returns overall as well. But the overall 12-month yield spreads remained positive and still favorable towards REIT’s forward total return. Back at home, the iEdge S-REIT Index slipped by 1.20% with two sectors that fared best being Office (+0.08%) and Diversified (-0.15%). Currently, Office and Diversified offered the best room for growth. Both have the best average yield of 5.5% to 6% respectively among all the other S-REIT sectors while being quite fairly valued in terms of Price-to-Book or Price-to-NAV. The underperforming sectors in the other hand, were Retail (-2.92%) and Hospitality (-1.78%).

The Omicron strain did introduce more uncertainty to the recovery of the sectors that had been largely affected by the pandemic for the past two years. More than 50 countries have stepped up border controls to slow the spread. Singapore is also freezing all new vaccinated travel lanes (VTLs) and relaxation on social measures. The VTLs launch with Qatar, Saudi Arabia and the United Arab Emirates are currently deferred until further notice. Virus development will need to be further observed in order to identify the right time for a recovery play. In a positive note however, the pandemic situation is stabling back at home and we saw a decrease in infections as the 7-day moving average of total COVID-19 cases fell to 1149 from 1613 the previous week.

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