Weekly Commentary: 23 May 2022 – 29 May 2022
The stock market decline continued for seven consecutive weeks now with the S&P 500 briefly went down passed 20% from its January’s record high into bear market territory on Friday. Growth stocks as loosely represented by the NASDAQ Composite (-3.77%) fared worst again, followed by the S&P 500 (-3.00%) and the Dow Jones Industrial Average (-2.78%). In contrast, both the STI (+1.55%) and the Hang Seng index (+4.22%) had rebounded into positive territory. Overall, we saw negative returns from the S&P 500 sectors with the exception of Energy (+1.36%), Healthcare (+0.93%), and Communication Services (+0.44%). The bottom three sectors in the other hand, were Consumer Staples (-8.60%), Consumer Discretionary (-7.43%), and InfoTech (-3.71%).
Market sentiment continued to center around the high inflation and fear of recession. The Consumer Price Index published monthly by the U.S. Bureau of Labor Statistics (BLS) had shown that the U.S. inflation rate by the end of April had decreased by 0.2 pp to 8.3%, although still remains at four-decade highs. 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. Given the ongoing Ukraine-Russia conflict that is driving crude prices up, and the additional pressure to existing supply chain issues caused by the ongoing lockdowns in China, inflation is expected to remain elevated for a while until we see more positive developments on these issues.
The yield-curve flattened for two consecutive weeks as the 10Y-2Y US Treasury yield fell by 11 bps to 0.20%. The U.S. 2-year Treasury yields had increased by 5 bps to reach 2.62% while the 10-year had decreased by 7 bps to 2.81%. The overall stock market sentiment remained in risk-off mode with an uptick in volatility as the global High Yield (HY) and Investment Grade (IG) spread continued to widen by 21 bps to 3.32% and the CBOE Volatility Index (VIX) rose by 196 bps to 29.43%. Both the HY-IG spread and VIX are well over their 20-day exponential moving average (EMA) of 2.89% and 29.43% respectively.
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 (+0.46%) had slightly rebounded after a two-week decline with positive returns from all of the S-REIT sub-sector. Healthcare (+3.19%) and Office (+1.40%) had performed the best, while the bottom two sub-sectors in the other hand were Industrial (+0.07%) and Diversified (+0.08%). With regards to the pandemic, the 7-day moving average of total COVID-19 cases sharply declined to around 500 cased from 3.2 thousand the previous week.
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