Weekly Commentary: 04 April 2022 – 10 April 2022
Muted returns reported by most of the major indices after a two-week rally. Growth stocks as loosely represented by the NASDAQ Composite (+0.66%) ended the week leading in front of the S&P 500 (+0.08%) and the DJIA (-0.12%). All the S&P 500 sectors saw mixed returns, with the defensives such as Real Estate (+3.21%), Utilities (+3.10%), and Consumer Staples (+1.94%) delivered the best performance. In the other hand, cyclicals such as Financials (-2.96%), Consumer Discretionary (-1.73%), and Industrials (-1.50%) relatively underperformed due to rate hikes and the resulting growth slowdown expectations. The Ukraine-Russia diplomatic talks in the past week had no real breakthroughs that could signify the end of the conflict as well. Closer to home, the STI (+0.16%) was edged out by the Hang Seng (+2.97%).
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 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. Three 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 had inverted for the first time since 2019 as the 10Y-2Y US Treasury yield fell to -0.20%. The U.S. 2-year Treasury yields had increased by 13 bp to reach 2.46% while the 10-year decreased by 12 bp to 2.38%%. An inverted yield-curve usually serves as a warning signal for an economic downturn and had preceded most of the stock market crashes in the past. Overall stock market sentiment is improving but remained volatile as the global High Yield (HY) – Investment Grade (IG) spread further contracted by 16 bp to 2.04% while the CBOE Volatility Index (VIX) fell by 118 bp to 19.63%.
As can be seen below, weekly performance from the global REIT markets were mostly positive with exception of the Hong Kong market. 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 (+0.88%) and all of the S-REIT sectors mostly reported positive returns overall. The two S-REIT sectors that had performed the best were Healthcare (+3.05%) and Diversified (+1.03%). The lagging sectors in the other hand, were Hospitality (-0.17%) and Office (+0.57%). The 7-day moving average of total COVID-19 cases further fell to around six thousand cases, from nine thousand the previous week. The new changes in COVID-10 rules in Singapore that eased off most of the current restrictions and allowed all fully vaccinated travellers to enter Singapore unrestricted had saw their implementation last week. The Singapore government had also stated that it will not tighten pandemic measures even if the number of Covid-19 cases starts to rise again in the near future. Overall, these are positive developments towards a full reopening, but the situation is to be observed closely still as a lot can go wrong quickly with high transmissibility of the virus.
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