Weekly Commentary: 30 May 2022 – 05 June 2022
The stock market had finally rebounded after a seven-week decline last week. Growth stocks as loosely represented by the NASDAQ Composite (+6.85%) held a slight lead by Friday, followed by the S&P 500 (+6.62%) and the Dow Jones Industrial Average (+6.62%). In contrast, the STI (-0.27%) slightly slipped and was edged out by the Hang Seng index (+0.30%). Overall, we saw positive returns from all eleven S&P 500 sectors with Consumer Discretionary (+9.26%), InfoTech (+8.08%), and Energy (+8.21%) delivering the best performance. The lagging sectors in the other hand, were Healthcare (+3.27%), Communication Services (+3.60%), and Utilities (+5.09%).
The rebound was driven by sign of peaking inflation and neutral stance Federal Reserve. The U.S. consumer price index 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 U.S. core personal consumption expenditures price index had also slowed down to 4.9% YoY, from 5.2% YoY in March. The latest Federal Reserve meeting minutes released last Wednesday largely fit within market expectations as well. In summary, the Fed will balance inflation control with minimal impact to economic growth while the remaining rate hikes for the year seemed to be planned at 50 bps. As a result, the oversold growth sectors regained some of their past weeks’ losses. Energy continued to outperform given the ongoing Ukraine-Russia conflict and lack of viable alternative solutions.
The yield-curve stayed flat last week as the 10Y-2Y US Treasury remained at 0.20%. Both the U.S. 2-year and 10-year Treasury yields had decreased by 14 bps to 2.48% and by 7 bps to 2.74% respectively. The overall stock market sentiment had finally turned more positive with a downtick in volatility as the global High Yield (HY) and Investment Grade (IG) spread contracted by 54 bps to 2.78% and the CBOE Volatility Index (VIX) fell by 371 bps to 25.72%.
As can be seen below, weekly performance from the global REIT markets were all positive with the exception of S-REITs. 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 (-0.75%) slipped with mostly negative returns from the S-REIT sub-sectors. Healthcare (-2.09%) and Diversified (-1.85%) fared the worst, while Industrial (+0.29%) and Hospitality (+0.10%) held up the best. With regards to the pandemic, the 7-day moving average of total COVID-19 cases had sharply increased to around seven thousand cases from five hundred the previous week.
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