Weekly Commentary: 02 May 2022 – 08 May 2022
Negative returns reported by all of the major indices for four consecutive weeks. Growth stocks as loosely represented by the NASDAQ Composite (-3.60%) continued to fare worst, followed by the S&P 500 (-3.26%) and the Dow Jones Industrial Average (-2.90%) respectively. Closer to home, both the STI (+0.38%) and the Hang Seng index (+5.87%) managed to stay in the positive territory. All of the S&P 500 sectors mostly reported negative returns as well, with the exception of the top four performers – Energy (+6.51%), InfoTech (+2.85%), Materials (+1.83%), and Communication Services (+0.45%). The bottom three sectors in the other hand, were Real Estate (-5.04%), Utilities (-3.00%), and Consumer Discretionary (-2.78%). Energy outperformance was due to the further supply strain as Russia cuts gas exports to Poland and Bulgaria while InfoTech were largely driven by the positive 1Q22 earnings reported by some of the bigger names in the sector such as Microsoft and Apple. 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 for two consecutive weeks as the 10Y-2Y US Treasury yield fell by 14 bp to 0.19%. The U.S. 2-year Treasury yields had increased by 11 bp to reach 2.78% while the 10-year also increased by 7 bp to 2.97%. 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 23 bp to 2.50% while the CBOE Volatility Index (VIX) jumped by 104 bp to 29.25%. The stock market is bracing for another rate hike this month that was speculated to be around 50 to 75 bp. Investors can expect a relief rally if the May hike is within or below market expectation, and a possible further sell-off if the opposite happens. To compare, the Fed had raised its benchmark interest rate by 25 bp earlier in March.
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 (+0.01%) had muted growth while all of the S-REIT sectors reported negative returns, with the exception of Diversified (+0.55%) and Retail (+0.07%). The lagging sectors in the other hand, were Office (-0.91%) and Healthcare (-0.50%). With regards to the pandemic, the 7-day moving average of total COVID-19 cases has dropped to around 2.4 thousand cases from over 3 thousands the previous week. The new COIVD rules that eliminate the cap in group gathering and the 75% workplace requirement has started its implementation last week, these are positive news overall for the S-REITs sectors.
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