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Weekly Outlook

Weekly Outlook 25 April 2022 – 1 May 2022

Weekly Commentary: 25 April 2022 – 01 May 2022

Negative returns reported by all of the major indices for three consecutive weeks. Growth stocks as loosely represented by the NASDAQ Composite (-3.83%) continued to fare worst, followed by the S&P 500 (-2.74%) and the DJIA (-1.82%) respectively. Closer to home, the STI (+0.76%) managed to stay in the positive territory ahead of the Hang Seng index (-4.09%). The S&P 500 sectors mostly reported negative returns as well, with the exception of Real Estate (+1.52%) and Consumer Staples (+1.31%). The bottom three sectors in the other hand, were Communication Services (-7.60%), Energy (-5.98%), and Materials (-3.80%). Communication Services underperformance was primarily triggered by Netflix as the streaming platform saw its share price crashed by around 37% last week due to its Q1 net loss in subscribers, with an even bigger loss estimated for Q2. The stock market overall had also reacted to the Fed officials’ comments that hinted towards a more hawkish May rate hike overall – possible to be around 50 to 75 bp given the high inflation. To compare, the Fed had raised its benchmark interest rate by 25 bp earlier in March. Meanwhile, we still saw no positive developments 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. However, hawkish rate hikes usually slowed economic growth and present the possibility of a recession if the rate is increased too far.

The yield-curve flattened last week as the 10Y-2Y US Treasury yield fell by 14 bp to 0.23%. The U.S. 2-year Treasury yields had increased by 21 bp to reach 2.67% while the 10-year also increased by 7 bp to 2.90%. The overall stock market sentiment remained in risk-off mode and volatile as the global High Yield (HY) – Investment Grade (IG) spread widened slightly by 1 bp to 2.27% while the CBOE Volatility Index (VIX) jumped by 551 bp to 28.21%.

As can be seen below, weekly performance from the global REIT markets were mostly mixed. 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%) and all of the S-REIT sectors had reported positive returns overall. The two S-REIT sectors that fared the best were Retail (+2.48%) and Hospitality (+2.17%). The lagging sectors in the other hand, were Industrial (+0.18%) and Healthcare (+0.46%). With regards to the pandemic, the 7-day moving average of total COVID-19 cases remained steady at 3.3 thousand cases. Hospitality and Retail S-REITs continued to outperform after the further easing of COVID measures that would take place from 26th April was announced last week. In essence, the new rules will eliminate the cap in group gathering and the 75% workplace requirement. These are positive news overall for all reopening plays.

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