Weekly Commentary: 27 December 2021 – 02 January 2022
Positive rebound from all of the major indices last week. Growth edged out value as the NASDAQ Composite gained 3.13% while the S&P 500 and the DJIA trailing behind with a 1.25% and 0.15% increase each. The STI however, slipped by -0.11% as compared to the Hang Seng’s 0.13%. All the S&P 500 sectors had positive weekly return all around as well with the top three performers being Consumer Discretionary (+5.57%%), InfoTech (+4.57%), and Energy (+3.58%). In the other hand, defensive stocks such as Utilities (+0.26%), Consumer Staples (+0.76%%), and Real Estate (+1.28%) had their momentum slowed down from the previous week and lagged the rest.
Rising inflation is a concern and definitely non-transitory due to rising energy prices and supply chain disruptions. 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. However, economic prospects brightened last week despite the increasing number of infections as further evidence proposed milder effect of Omicron when compared to the Delta variant.
The yield-curve steepened last week as both the U.S. 2-year and 10-year Treasury yield increased by 6 bp and 7 bp to reach 0.69% and 1.49% respectively. The 10Y-2Y US Treasury yield spread widened slightly to 0.80%. Stock market sentiment was strengthening but still in cautious mode as the global HY-IG spread further contracted by 23 bp to 1.87% while the CBOE Volatility Index (VIX) decreased by 491 bp to 17.96%, both are lying well below their 50-day exponential moving average of 2.07% and 20.31%.
As can be seen below, the global REIT markets reported mostly negative returns overall with only US, Canada, UK and France delivering weekly returns in the positive range. 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 0.92% with two sectors that performed the best being Healthcare(+2.51%) and Diversified (+1.62%). 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 Office (0.60%) and Industrial (0.81%).
Back at home, Singapore has reported a total of 448 Omicron case to date. The Omicron variant had brought in a new wave of the pandemic and saw many countries tightening their restrictions to curb the spread last week. 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 in order to identify the right time for a recovery play as the new variant will likely delay the pace moving forward. In a positive note however, the pandemic situation is stabling and we saw a decrease in infections as the 7-day moving average of total COVID-19 cases fell to 275 from 422 the previous week.
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