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Weekly Outlook

Weekly Outlook 13 June 2022 – 19 June 2022

Weekly Commentary: 13 June 2022 – 19 June 2022

The stock market has continued to fall  for two consecutive weeks. The NASDAQ Composite (-5.59%) fared worst, but the S&P 500 (-5.04%) and the Dow Jones Industrial Average (-4.56%) were trailing not far behind again. Meanwhile, the Hang Seng (+3.70%) has managed to stay in the positive as compared to the STI (-1.55%). Overall, we saw negative returns from all eleven S&P 500 sectors with the defensives such as Energy (-0.83%), Consumer Staples (-2.59%), and Healthcare (-3.38%), faring relatively better. In the other hand, Financials (-6.75%), InfoTech (-6.37%), and Real Estate (-6.09%) underperformed.

Last week, the energy crunch continued to support the sector while cyclicals’ sharp decline was mostly caused by the newly released U.S May consumer price index (CPI). The data has shown that the inflation rate accelerated by 0.3 pp to 8.6% YoY in May, currently the highest in the trailing 40-year period. This went against investors’ expectation that inflation has peaked in March. As a result, the market was quick to price in the potentially more hawkish response from the Federal Reserve. The latest meeting minutes released three weeks ago had indicated the Fed’s stance in balancing inflation control with minimal impact to economic growth, but this may change if its efforts continued to be ineffective. The remaining rate hikes for the year might be more frequent, and raised more aggressively above 50 bps. A progression that is expected to cripple economic growth and be the start of a recession. Eyes are on what the Fed’s Chair Powell has to say this coming Wednesday.

The yield-curve sharply flattened last week as the 10Y-2Y US Treasury fell by 20 bps to 0.09%. Both the U.S. 2-year and 10-year Treasury yields had increased by 41 bps to 3.06% and by 22bps to 3.16% respectively. The overall stock market sentiment turned risk-off with a large uptick in volatility as the global High Yield (HY) and Investment Grade (IG) spread widened by 25 bp to 3.02 % and the CBOE Volatility Index (VIX) surged by 296 bps to 27.75%. Both indicators are hovering slightly above their respective 30-day EMA of 2.89% and 26.64%.

As can be seen below, weekly performance from the global REIT markets were mostly negative with the exception of Singapore, Malaysia, and Japan. 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 (+4.24%) rallied again with mostly positive returns from all of the S-REIT sub-sectors, with the exception of Diversified (-0.37%) and Healthcare (-0.21%). In the other hand, Hospitality (+1.01%) and Office (+0.71%) outperformed. With regards to the pandemic, the 7-day moving average of total COVID-19 cases remained at three thousand cases. Another relaxation of COVID curbs was also announced last week for nightspots capacity limit and migrant workers exit pass from dormitories.

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