Weekly Commentary: 28 February 2022 – 06 March 2022
The stock market did not fall into a deeper slump last week despite the escalation in the Russia-Ukraine conflict. This is mostly due to the overall response or sanctions from the U.S and other NATO allied countries that were weaker than expected. Value stocks as loosely represented by the DJIA (-0.03%) slipped slightly while the NASDAQ Composite (+1.10%) and the S&P 500 (+0.84%) regained some of their previous losses. Both the STI (-3.92%) and Hang Seng (-6.41%) had quite a significant slippage last week in comparison. We saw overall positive returns from all of the S&P 500 sectors as well, with the exception of the bottom three sectors – Consumer Discretionary (-2.13%), Consumer Staples (-0.30%), and Financials (-0.25%). In the other hand, Real Estate (+2.74%) and Healthcare (+2.74%) had regained their momentum, while defensives such as Utilities (+2.17) has also performed well.
The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) had indicated that the U.S. inflation rate by the end of January had increased by 0.5% MoM to reach 7.5%. The average US inflation rate for 2021 was as 4.7%, the highest since 1990. Inflation is currently at the highest we have seen since 1982 and will likely remain in the high range in the near term due to the lingering global energy crunch and supply chain disruptions caused by the pandemic. The high inflation has been the main driver for an increase in interest rate, which has been suppressed to stimulate economic growth during the pandemic for the past two years. Investors have been pricing in the upcoming rate-hikes and the aftermath from the Russia-Ukraine conflict, resulting in a punishing correction and high volatility in the stock market for the past few weeks.
The yield-curve flattened last week as the 10Y-2Y US Treasury yield spread fell by 5 bp to 0.42%. The U.S. 2-year increased by 2 bp to 1.49% while the 10-year decreased by 2 bp to reach 1.90%. Stock market sentiment remained weak and volatile as the global HY-IG spread largely unchanged as it slightly widened by 1 bp to 2.48% while the CBOE Volatility Index (VIX) decreased by 52 bp to 27.59%. Both are well over to their 50-day exponential moving average of 2.23% and 24.17%.
As can be seen below, weekly performance from the global REIT markets were mixed although the overall 12-month yield spreads remained positive and still favorable towards REIT’s forward total return. The iEdge S-REIT Index (-2.23%) and all of the S-REIT sectors reported negative returns. The two S-REIT sectors that held up the best were Healthcare (-1.55%) and Industrial (-1.95%). The worst hit sectors in the other hand, were Hospitality (-3.81%) and Office (-2.31%). The slippage can be attributed to the surge in cases that resulted in a push back of the new streamlined measures from the Singapore Government to an undisclosed date. Back at home, we still saw an increase in infections as the 7-day moving average of total COVID-19 cases sharply rose to around 18.3 thousands from 14.6 thousands the previous week. As of now, there is no change in the COVID policy stance from the Singapore government that is in favour of reopening. New VTL with Hong Kong, as well as previously deferred VTLs with Qatar, Saudi Arabia and the United Arab Emirates (UAE), will soon be launched. VTL quotas will also be progressively restored and increased. Further development will need to be closely observed in order to identify the right time for a recovery play as Omicron will likely delay the pace moving forward and the supporting indicators are currently still weak. For example, 57 thousands inbound arrivals to the country in January is still significantly below pre-COVID range of 1.5-1.8 million visitors per month.
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