Weekly Commentary: 20 June 2022 – 26 June 2022
The stock market has entered bear market territory with three consecutive weeks of decline now. Market sentiment continued to worsen along with the series of rate hikes by major central banks across the globe last week. The S&P 500 index (-5.75%) fared worst, with the NASDAQ Composite (-4.76%) and the Dow Jones Industrial Average (-4.73%) trailing not far behind. The other market indices shared the same fate as well, including the Hang Seng (-3.28%) and STI (-2.63%). Overall, we saw negative returns from all eleven S&P 500 sectors with the defensives such as Consumer Staples (-4.24%) and Healthcare (-4.42%), in addition to Communication Services (-4.57%), faring relatively better. In the other hand, Energy (-17.15%), Utilities (-9.11%), and Materials (-8.24%) were the worst performers. Energy sharply tumbled on worries that the rate hikes could slow the global economy and cut demand for energy.
On Wednesday, the Federal Reserve announced its third rate hike this year. The target were raised to 0.75%-1%, the most aggressive since 1994. As a result, recession fears dominated the market and sent stocks down sharply. Within hours after, Brazil, Saudi Arabia and others announced rate changes. Switzerland and Britain followed suit on Thursday morning. The U.S consumer price index (CPI) data has shown that the inflation rate had accelerated by 0.3 pp to 8.6% YoY in May, currently the highest in the trailing 40-year period. Nearly four dozen countries have raised interest rates in the past six months as central banks hope to contain the most rapid global inflation in decades by increasing borrowing costs and slowing down growth on the demand side. But inflation is likely to remain elevated in the second half of 2022 due to lack of resolutions to the current energy and commodity supply constraints, propagated by the Ukraine-Russia conflict that could last for years according to the NATO head on Sunday.
The yield-curve flattened for two consecutive weeks as the 10Y-2Y US Treasury fell by 4 bps to 0.05%. Both the U.S. 2-year and 10-year Treasury yields had increased by 12 bps to 3.18% and by 7 bps to 3.23% respectively. The overall stock market sentiment remained risk-off with a continued uptick in volatility as the global High Yield (HY) and Investment Grade (IG) spread widened by 56 bps to 3.58 % and the CBOE Volatility Index (VIX) surged by 338 bps to 31.13%. Both indicators are hovering well above their respective 30-day EMA of 3.13% and 28.74%.
As can be seen below, weekly performance from the global REIT markets were all negative. 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 (-2.12%) and all of the S-REIT sub-sectors reported negative returns as well, with Diversified (-0.01%) and Hospitality (-0.69%) faring better. In the other hand, Office (-4.12%) and Retail (-2.47%) underperformed. With regards to the pandemic, we saw no major developments and the 7-day moving average of total COVID-19 cases remained stable at the three-thousand range.
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