Weekly Commentary: 10 January 2022 – 16 January 2022
Negative returns from all major indices last week. Growth stocks as loosely represented by the NASDAQ Composite fared worst as it slipped by 4.52%. The S&P 500 and the DJIA also fell by 1.83% and 0.25% each. Mostly negative returns from the S&P 500 sectors with the exception of the top four sectors – Energy (+7.28%), Financials (+4.15%), Industrials (+1.48%), and Consumer Staples (+0.41%). In comparison, InfoTech (-5.64%), Consumer Discretionary (-5.20%), and Real Estate (-4.01%) formed the bottom three sectors. The STI’s 2.61% edged out the Hang Seng’s 0.41% last week.
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 and will likely to remain in the high range due to the global energy crunch and supply chain disruptions. Furthermore, the latest Federal Reserve meeting minutes released last week showed that the Fed is prepared to hike interest rates, taper bond-buying, and reduce its US$ 9 trillion holdings in treasuries and mortgage-backed securities at the same time, presenting a more aggressive approach from what was expected. The more hawkish stance had definitely caused growth underperformance and sent the market into a value rotation last week.
The yield-curve steepened last week as both the U.S. 2-year and 10-year Treasury yield increased by 13 bp and 25 bp to reach 0.86% and 1.76% respectively. The 10Y-2Y US Treasury yield spread widened to 0.90%. Stock market sentiment is moderate and cautious as the global HY-IG spread widened by 15 bp to 2.06% while the CBOE Volatility Index (VIX) increased by 154 bp to 18.76%. Both are hovering close to their 50-day exponential moving average of 2.02% and 19.52%.
As can be seen below, the global REIT markets mostly slipped with the exception of Malaysia and France. However, the overall 12-month yield spreads remained positive and still favorable towards REIT’s forward total return. The iEdge S-REIT Index slipped by 1.94% and all the S-REIT sectors reported negative returns as well. The two sectors that held up the best were Hospitality (-0.43%) and Office (-1.06%). The sectors that fared the worst in the other hand, were Industrial (-2.25%) and Retail (-2.15%).
Back at home, we saw an uptrend in infections as the 7-day moving average of total COVID-19 cases rose to 544 from 329 the previous week. The Omicron variant had brought in a new wave of the pandemic and saw many countries tightening their restrictions to curb the spread. 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.
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