Weekly Commentary: 13 December 2021 – 19 December 2021
All of the major indices had positive rebounds following the all-negative returns the week prior. Value stocks as loosely represented by the Dow Jones Industrial Average led the group with a 4.05% gain by Friday. The S&P 500 and the NASDAQ Composite were not far behind with an increase of 3.84% and 3.62% each. Both the STI and Hang Seng gained 1.09% and 0.96% respectively. All S&P 500 sectors delivered weekly returns in the positive range as well with the top three performers being InfoTech (+4.97%%), Healthcare (+2.64%), and Energy (+2.19%). In the other hand, Utilities (+1.08%), Financials (+1.23%), and Consumer Discretionary (+1.39%) were the lagging sectors for the week.
The stock market was dominated by rising inflation and the uncertainty brought up by the Omicron variant. It has rebounded following reports of the milder symptoms in the new variant. However, inflation remained a concern. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the inflation rate by the end of November has increased by 0.6% to reach 6.8%, the highest since 1982. Many are fearing that this will force the Fed’s hands in raising benchmark interest rate at a faster pace as 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 steepened last week as both the U.S. 2-year and 10-year Treasury yield increased by 6 bp and 14 bp to reach 0.59% and 1.48% respectively. The 10Y-2Y US Treasury yield spread widened to 0.83%. Market sentiment was moderate and recovering as the global HY-IG spread further contracted by 20 bp to 2.06% while the CBOE Volatility Index (VIX) sharply decreased by 1198 bp to 18.69%, both are lying slightly below their 50-day exponential moving average of 2.08% and 20.29%.
As can be seen below, the global REIT markets reported positive returns overall as well, with the exception of Malaysia. 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 gained 0.94% with two sectors that fared best being Hospitality (+2.75%) and Diversified (+1.38%). The rebound for Hospitality was mostly due to positive development on the Omicron variant. 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 Healthcare (+0.21%) and Hospitality (+0.26%).
Back at home, Singapore has reported its first local Omicron case. So far, more than 50 countries have stepped up border controls to slow the spread and Singapore had also stopped all new vaccinated travel lanes (VTLs) destinations 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 closely observed moving forward in order to identify the right time for a recovery play as we still have insufficient data on the new variant. 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 645 from 1149 the previous week.
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