Weekly Commentary: 04 July 2022 – 10 July 2022
The stock market fell into a decline again last week where Growth as loosely represented by the NASDAQ Composite (-4.12%) fared worst, followed by the S&P 500 index (-2.18%) and the Dow Jones Industrial Average (-1.27%). All other market indices including the STI (-0.52%), ended the week in the negative territory except for the Hang Seng index (+3.13%). Overall, we saw mostly negative returns from all eleven S&P 500 sectors with the defensives such as Utilities (+4.14%), Energy (+1.29%), and Healthcare (+0.42%) taking the lead. The outperformance came as recession worries mount and energy prices remained high. In the other hand, Growth sectors such as Consumer Discretionary (-4.69%), Communication Services (-4.54%), and InfoTech (-4.47%) were the bottom performers for the week.
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. Inflation is elevated globally, and the ripple has also reached our shores as Singapore’s headline inflation in May has also accelerated by 0.2 pp to 5.6%, the highest since the GFC. 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 this comes with a risk of driving the global economy into a recession. Inflation is also likely to remain high 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 two weeks ago.
The yield-curve flattened slightly as the 10Y-2Y US Treasury fell by 2 bps to 0.05%. Both the U.S. 2-year and 10-year Treasury yields declined by 23 bps to 2.83% and by 25 bps to 2.88% respectively. The overall stock market sentiment was largely risk-off and highly volatile as the global High Yield (HY) and Investment Grade (IG) spread surged by 61 bps at 4.20 % and the CBOE Volatility Index (VIX) fell by 53 bps to 26.70%.
As can be seen below, weekly performance from the global REIT markets were mixed but 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 (-1.00%) slightly declined although we see mixed returns for the S-REIT sub-sectors with Healthcare (+0.58%) and Hospitality (+0.50%) faring the best. In contrast, Retail (-1.32%) and Office (-1.03%) underperformed. With regards to the pandemic, Singapore is likely to be experiencing a new wave of infections as the 7-day moving average of total COVID-19 cases surged to around eight thousand cases from around five-thousand the previous week. There is no changes in the COVID measures for now although deputy prime minister Lawrence Wong has stated that future tightening of restrictions is not ruled out.
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