Weekly Commentary: 16 May 2022 – 22 May 2022
The stock market continued to decline for six consecutive weeks. Growth stocks as loosely represented by the NASDAQ Composite (-2.77%) fared worst again, followed by the S&P 500 (-2.36%) and the DJIA (-2.08%) respectively. Closer to home, both the STI (-2.71%) and the Hang Seng index (-0.24%) ended the week in the negative territory as well. Overall, we saw mixed returns from the S&P 500 sectors with the top performers being Energy (+9.01%), Healthcare (+2.46%), and Communication Services (+1.73%). The bottom three sectors in the other hand, were Financials (-1.89%), Consumer Discretionary (-1.22%), and InfoTech (-0.45%).
Market sentiment is still dominated by the high inflation although recent data might suggest that it has peaked. 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 April had decreased by 0.2 pp to 8.3%. Given the ongoing Ukraine-Russia conflict, the disruptions caused by the ongoing lockdowns in China, and high energy prices, inflation is expected to remain elevated for a while until we see positive developments on these issues. The high inflation has been the main driver for the current rate hikes, which was suppressed to stimulate economic growth during the pandemic for the past two years. As a result, however, worries mount on the impact on economic growth and investors are pulling back to a more conservative valuation estimates in pricing in the rate hikes.
The yield-curve flattened last week as the 10Y-2Y US Treasury yield fell by 8 bps to 0.31%. The U.S. 2-year Treasury yields had decreased by 16 bps to reach 2.57% while the 10-year also decreased by 24 bps to 2.88. The overall stock market sentiment remained in risk-off mode although we saw a downtick in volatility as the global High Yield (HY) and Investment Grade (IG) spread continued to widen by 43 bps to 3.11% while the CBOE Volatility Index (VIX) fell by 272 bps to 27.47%. The HY-IG spread are well over its 20-day exponential moving average (EMA) of 2.71% while the VIX is hovering slightly under its 20-day EMA of 29.12%.
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 (-2.65%) continued to decline for two consecutive weeks although we saw mixed returns from the S-REIT sub-sectors this time around. Healthcare (+0.79%) and Retail (+0.74%) had performed the best, while the bottom two sub-sectors in the other hand were Industrial (-2.12%) and Office (-1.03%). With regards to the pandemic, the 7-day moving average of total COVID-19 cases gained a slight uptick to 3.2 thousand cases from 2.7 thousand the previous week. Three COVID-19 cases infected with new BA.4 and BA.5 Omicron subvariants had also been detected in Singapore last week. The European Centre for Disease Prevention and Control had recently classified these as variants of concern and have been reported in at least 16 countries as of May 11.
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