Weekly Commentary: 27 June 2022 – 03 July 2022
The stock market finally rebounded last week after experiencing three consecutive weeks of decline. Growth as loosely represented by the NASDAQ Composite (+7.51%) had the best gain while the S&P 500 index (+6.46%) and the Dow Jones Industrial Average (+5.39%) were trailing closely behind. All other market indices ended the week in the positive territory, with the Hang Seng index (+3.15%) leading over the STI (+0.44%). Overall, we saw positive returns from all eleven S&P 500 sectors with the exception of Energy (-1.55%) which has been declining for two straight weeks. Materials(+2.70%) and Industrial (+4.24%) also made up the bottom three sectors. In the other hand, Consumer Discretionary (+8.25%), Healthcare (+8.17%), and Real Estate (+7.79%) were the top performers for the week. Market sentiment turned more positive after recent data has shown a slowing down of the U.S. economic and manufacturing activity which would possibly translate to a more contained rate hike next month.
However, the Fed Chair Jerome Powell statement before Congress on Wednesday and Thursday remained mostly committed on bringing down inflation. Two weeks ago, 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 steepened slightly as the 10Y-2Y US Treasury rose by 2 bps to 0.07%. Both the U.S. 2-year and 10-year Treasury yields had fell by 12 bps to 3.06% and by 10 bps to 3.13% respectively. The overall stock market sentiment remained risk-off with a downtick in volatility as the global High Yield (HY) and Investment Grade (IG) spread largely unchanged at 3.59 % and the CBOE Volatility Index (VIX) fell by 390 bps to 27.23%. Both indicators are hovering well above their respective 30-day EMA of 2.76% and 27.25%.
As can be seen below, weekly performance from the global REIT markets were largely positive with the exception of the Malaysia, and Japan markets. The overall 12-month yield spreads remained mostly positive and favorable towards the REIT markets’ forward total returns. Back at home, the iEdge S-REIT Index (+1.32%) was in the positive range although we see mixed returns for the S-REIT sub-sectors with Industrial (+2.95%) and Retail (+1.68%) faring the best. In the other hand, Diversified (-1.88%) and Hospitality (-1.72%) underperformed. With regards to the pandemic, the 7-day moving average of total COVID-19 cases surged to around 5.2 thousand cased from around three-thousand the previous week.
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