Weekly Commentary: 18 April 2022 – 24 April 2022
Negative returns reported by all of the major indices for two consecutive weeks. Growth stocks as loosely represented by the NASDAQ Composite (-3.93%) fared worst again, followed by the S&P 500 (-2.37%) and the DJIA (-0.38%). Closer to home, both the STI (-1.81%) and the Hang Seng (-1.33%) were also in the negative territory. In terms of the S&P 500 sectors, still mixed returns overall, with Energy (+3.57%), Materials (+1.17%), and the Consumer Discretionary (+1.10%) delivering the best performance. In the other hand, cyclicals such as Financials (-2.16%), Communication Services (-1.28%), and InfoTech (-1.24%) continued to relatively underperformed for three straight weeks as there were growing fears in the stock market that the U.S. economy is heading towards a recession and a more hawkish May rate hike is possible judging from the most recent statement by the Federal Reserve. Meanwhile, fighting continues in Mariupol in the Ukraine-Russia conflict.
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 March had increased by 1.2% MoM to reach 8.5%. This is more than four times above the Fed’s 2% target and the highest we have seen since 1982’s 8.4%. The rate is expected to climb 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 continued to steepen as the 10Y-2Y US Treasury yield increased to 0.37%. The U.S. 2-year Treasury yields had decreased by 8 bp to reach 2.45% while the 10-year increased by 12 bp to 2.83%%. The overall stock market sentiment remained in risk-off mode and saw an uptick in volatility as the global High Yield (HY) – Investment Grade (IG) spread widened by 4 bp to 2.26% while the CBOE Volatility Index (VIX) increased by 154 bp to 22.7%.
As can be seen below, weekly performance from the global REIT markets were mostly negative with the exception of the Japan, Malaysia, and France 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 (-0.01%) and all of the S-REIT sectors mostly saw muted returns. The two S-REIT sectors that fared the best were Hospitality (+2.68%) and Healthcare (+1.09%). The worst-hit sectors in the other hand, were Diversified (-0.21%) and Industrial (-0.14%). With regards to the pandemic, the 7-day moving average of total COVID-19 cases continued to fall to around 3.3 thousand cases, from 4.4 thousand the previous week. Hospitality continued to outperform as Singapore progressed steadily to a full reopening. 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 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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