Weekly Commentary: 24 January 2022 – 30 January 2022
The stock market slumped further last week as investors were spurred by fears of rising interest rates. Value stocks as loosely represented by the DJIA (-4.55%) held up the best while the S&P 500 (-4.55%) and the NASDAQ Composite (-7.55%) fared worst and had the highest weekly decline since the start of the pandemic in 2020. Negative returns from all S&P 500 sectors as well. The more resilient sectors were the defensives such as Utilities (-0.79%) and Consumer Staples (-1.42%), in addition to Real Estate (-2.85%). In contrast, sectors such as Consumer Discretionary (-8.48%), Communication Services (-7.05%), and InfoTech (-6.94%) were hit the hardest. The STI (+0.39%) and Hang Seng (+2.39%), however, managed to delivered return in the positive range.
The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the inflation rate by the end of December has increased by 0.2% to reach 7%, the highest since 1982 and will likely remain in the high range in the near term due to the global energy crunch and supply chain disruptions. The average US inflation rate for 2021 was 4.7%, the highest since 1990. Rising inflation usually demand an increase in interest rate. This has been suppressed to stimulate economic growth in the past year, but the trend is most likely to be imminent this year due to the non-transitory high inflation and will inevitably punish the generously valued stocks.
The yield-curve flattened for two consecutive weeks as the U.S. 2-year Treasury yield increased by 7 bp to reach 1.03% while the 10-year Treasury yield remained at 1.78%. The 10Y-2Y US Treasury yield spread further narrowed by 7 bp to 0.74%. Stock market sentiment remained weak as the global HY-IG spread widened by 15 bp to 2.14% while the CBOE Volatility Index (VIX) increased by 966 bp to 28.85%. Both are well over to their 50-day exponential moving average of 2.01% and 20.31%.
As can be seen below, the global REIT markets mostly slipped with the exception of Hong Kong and Singapore. However, the overall 12-month yield spreads remained positive and still favorable towards REIT’s forward total return. The iEdge S-REIT Index (+0.12%) and all the S-REIT sectors reported mostly positive returns. The two sectors that performed the best were Retail (+0.67%) and Office (+0.37%). The sectors that fared the worst in the other hand, were Hospitality (-1.29%) and Healthcare (-0.05%).
Back at home, we saw an uptrend in infections as the 7-day moving average of total COVID-19 cases sharply rose to 2540 from 974 the previous week. Omicron 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 until 20th January. 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 Omicron will likely delay the pace moving forward.
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