Weekly Commentary: 06 June 2022 – 12 June 2022
The stock market fell into a decline again after rallying the previous week. The S&P 500 index (-1.15%) fared worst, but the NASDAQ Composite (-0.95%) and the Dow Jones Industrial Average (-0.83%) were trailing not far behind. Meanwhile, the STI (+0.07%) has managed to stay in the positive territory while the Hang Seng index (+5.04%) outperformed. Overall, we saw mostly negative returns from all eleven S&P 500 sectors with the exception of Energy (+1.20%), Consumer Discretionary (+0.11%), and Industrial (+0.10%). The lagging sectors in the other hand, were Healthcare (-3.13%), Real Estate (-2.20%), and Financials (-2.05%). Energy continued to outperform given the ongoing Ukraine-Russia conflict and lack of viable alternative solutions.
Economic indicators may have indicated that inflation has peaked, but expect the volatility to stay as the Federal Reserve’s next move remained uncertain. 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 two weeks ago 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. However, worries are still looming on the Fed’s ability to steer away from a recession.
The yield-curve steepened last week as the 10Y-2Y US Treasury climbed by 9 bps to 0.29%. Both the U.S. 2-year and 10-year Treasury yields had increased by 18 bps to 2.65% and by 20 bps to 2.94% respectively. The overall stock market sentiment saw little changes with a continued downtick in volatility as the global High Yield (HY) and Investment Grade (IG) spread contracted by 1 bp to 2.77% and the CBOE Volatility Index (VIX) fell by 93 bps to 24.79%. Both indicators are hovering slightly below their respective 30-day EMA of 2.89% and 27.36%.
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 the REIT markets’ forward total returns. Back at home, the iEdge S-REIT Index (+1.71%) rallied with positive returns from all of the S-REIT sub-sectors. Hospitality (+2.83%) and Industrial (+2.42%) outperformed, while Retail (+0.63%) and Industrial (+0.87 %) relatively lagged the rest. With regards to the pandemic, the 7-day moving average of total COVID-19 cases had fell to around three thousand cases. However, Singapore’s health minister had cautioned last week that the next wave might emerge in July or August due to waning antibodies and potential surge of the BA.4 and BA.5 sub-variants of the virus.
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