Weekly Commentary: 11 April 2022 – 17 April 2022
Negative returns reported by all of the major indices last week. Growth stocks as loosely represented by the NASDAQ Composite (-3.85%) fared worst, followed by the S&P 500 (-1.24%) and the DJIA (-0.23%). Closer to home, both the STI (-0.85%) and the Hang Seng (-0.76%) were also in the negative territory. All of the S&P 500 sectors saw mixed returns, with Healthcare (+4.22%), Energy (+3.14%), and the defensives such as Consumer Staples (+3.08%) and Utilities (+2.72%) delivering the best performance. In the other hand, cyclicals such as InfoTech (-5.80%), Consumer Discretionary (-5.47%), and Communication Services (-4.78%) relatively underperformed for two straight weeks, especially after a rather hawkish statement from the Fed Reserve Governor last week on the upcoming May rate hike. The Ukraine-Russia conflict was nowhere close to a peaceful ending as 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 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. Last month, 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 steepened and recovered from the previous week’s inversion as the 10Y-2Y US Treasury yield increased to 0.17%. The U.S. 2-year Treasury yields had increased by 8 bp to reach 2.53% while the 10-year increased by 33 bp to 2.71%%. The overall stock market sentiment was in risk-off mode and saw an uptick in volatility as the stock market were spooked by the Fed Governor’s statement. The global High Yield (HY) – Investment Grade (IG) spread widened by 18 bp to 2.22% while the CBOE Volatility Index (VIX) increased by 153 bp to 21.16%.
As can be seen below, weekly performance from the global REIT markets were mostly negative with the exception of the Hong Kong, Malaysia, and UK markets. However, 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 (-1.32%) and all of the S-REIT sectors also mostly reported negative returns. The two S-REIT sectors that fared the best were Hospitality (+0.37%) and Diversified (-0.62%). The worst-hit sectors in the other hand, were Office (-1.82%) and Industrial (-1.54%). With regards to the pandemic, the 7-day moving average of total COVID-19 cases continued to fall to around 4.4 thousand cases, from 6 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 is also expected to bring more inbound visitors to Singapore. Overall, these are positive developments towards a full reopening and good news for the sectors badly affected by the delayed recovery, 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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