Weekly Commentary: 28 March 2022 – 03 April 2022
All the major indices reported positive returns for two consecutive weeks. Growth stocks as loosely represented by the NASDAQ Composite (+1.99%) had the best return, followed by the S&P 500 (+1.81%) and the DJIA (+0.31%). All the S&P 500 sectors also saw positive returns, with the exception of Healthcare (-0.09%). Real Estate (+0.90%) and Industrials (+0.98%) also lagged and formed the bottom three sectors. In the other hand, Energy (+3.50%), Materials (+3.24%), and Communication Services (+2.83%) had outperformed. This is mostly due to the surging commodity prices and a continued tech rebound. Closer to home, the STI (+2.49%) edged out the Hang Seng (-0.03%) last week.
Market sentiment still revolves around rate inflation, rate hike expectations, and the lack of positive developments in the Ukraine-Russia conflict. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) indicated that the U.S. inflation rate by the end of February had increased by 0.9% MoM to reach 7.9%. This is the highest we have seen since 1982’s 8.4% and is expected to remain in the high range due to the high energy prices. Strong consumer demand, shortages of supplies such as semiconductors, and supply-chain constraints caused by the sporadic pandemic outbreaks had also elevated inflation for the past year. The high inflation has been the main driver for an increase in interest rate, which was suppressed to stimulate economic growth during the pandemic. Two weeks ago, the U.S. Federal Reserve raised its benchmark interest rate by 0.25 percentage points, ending the near-zero rates of the pandemic era and starting a hiking cycle set to last well into 2023. The size and scope of future hikes remain unclear however. The possible hawkish stance from the Fed in the next rate hike means slower economic growth and present the possibility of a recession if the rate is increased too far.
The yield-curve flattened as the 10Y-2Y US Treasury yield spread further fell to 0.20%. Both the U.S. 2-year and 10-year Treasury yields had increased by 39 bp to reach 2.33% and by 35 bp to reach 2.50% respectively. The stock market sentiment is improving but remained volatile as the global HY-IG spread further contracted by 23 bp to 2.20% while the CBOE Volatility Index (VIX) fell by 306 bp to 20.81%.
As can be seen below, weekly performance from the global REIT markets were mostly positive with exception of Malaysia, Canada, and Germany. The overall 12-month yield spreads are also mostly positive and favorable towards REIT’s forward total return. Back at home, the iEdge S-REIT Index (+1.26%) and all of the S-REIT sectors mostly reported positive returns overall. The two S-REIT sectors that had performed the best were Hospitality (+7.78%) and Diversified(+1.40%). The lagging sectors in the other hand, were Healthcare (-0.17%) and Office (+0.99%).
Hospitality outperformance came after the new changes to Singapore’s COVID-19 measures were announced last week. The changes eased off most of the current restrictions and most importantly, all fully vaccinated travellers are able to enter Singapore unrestricted from March 31. There will be no entry approval and quota on the number of daily arrivals moving forward. The 7-day moving average of total COVID-19 cases further fell to around 9 thousand cases, from 11 thousand the previous week. Overall, this is a positive development and the new measures are definitely a step in the right direction. However, we need to observe closely how the situation unfolds in the new few weeks as Hong Kong had already shown us how quickly the situation will turn with an ill-prepared healthcare system, even with its zero-COVID approach.
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