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.
This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.
An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.
Investments are subject to investment risks including the possible loss of the principal amount invested, and are not obligations of, deposits in, guaranteed or insured by PCM or any of its subsidiaries, associates, affiliates or PDs. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products. The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.
The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.
The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. This advertisement has not been reviewed by the Monetary Authority of Singapore.