Weekly Commentary: 07 February 2022 – 13 February 2022
The stock market remained volatile last week but recorded overall gains for the second consecutive week. Value stocks as loosely represented by the DJIA (1.06%) improved slightly while the S&P 500 (1.57%) and the NASDAQ Composite (2.41%) recovered the most from the previous week. The STI (+2.7%) and Hang Seng (+4.34%), however, managed to advance its recovery from the week earlier.
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 has been flattening over the last few months. Two-year U.S. Treasury yields, which track short-term interest-rate expectations, have risen to 1.16% from 0.73% at the end of last year – a 60% increase. U.S. benchmark 10-year yields have gone up to about 1.8% from 1.5%, a 20% rise.
This week, the CBOE Volatility Index (VIX) closed 16% down from the previous week at 23.22 points. In the past month, the VIX reached a high of 38.94 points and a low of 16.58 points.
As can be seen below, the global REIT markets mostly slipped or remained flat with the exception of Australia 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.
Back at home, we saw an uptrend in infections as the 7-day moving average of total COVID-19 cases sharply rose to 13,208 from 2,540 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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