Weekly Commentary: 11 July 2022 – 17 July 2022
The stock market has bounced slightly last week where Growth as loosely represented by the NASDAQ Composite (+2.22%) fared best, followed by the S&P 500 (+0.80%%) and the Dow Jones Industrial Average (+0.29%). The other key market indices including the STI (+1.15%), ended the week in the positive territory as well except for the Hang Seng (-2.96%). Overall, we saw mixed returns from all eleven S&P 500 sectors with the top performers being InfoTech (+2.87%), Communication Services (+2.18%), and Consumer Discretionary (+1.67%). The growth sectors outperformance was due to some recovered optimism on the Federal Reserve’s ability to not oversteer into a recession. In the other hand, Energy (-3.25%), Utilities (-2.21%), and Materials (-1.74%) relatively underperformed as the U.S. oil price dropped to a two-month low.
The U.S. consumer price index (CPI) data has accelerated by 0.3 pp to 8.6% YoY in May, currently the highest in the trailing 40-year period. Inflation remained elevated globally and has also reached our shores as Singapore’s headline inflation in May increased 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 inflation by increasing borrowing costs and slowing down growth on the demand side, at the 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 three weeks ago. Current market focus is on the June U.S. CPI data that will be released on 13th July. A deceleration from May’s 8.6% would be a positive as it means that the Fed’s policy is working and there would be smaller probability for the next rate hike to be more aggressive or to go over what the market has priced in at 75 bps.
The yield-curve has inverted as the 10Y-2Y US Treasury fell by 12 bps to -0.07%. Both the U.S. 2-year and 10-year Treasury yields has increased by 20 bps to 3.03% and by 8 bps to 2.96% respectively. The overall stock market sentiment remained largely risk-off and highly volatile, but saw a slight improvement last week as the global High Yield (HY) and Investment Grade (IG) spread contracted by 39 bps at 3.81 % and the CBOE Volatility Index (VIX) fell by 53 bps to 26.17%.
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 (+0.54%) reported positive weekly return although we see mixed performance for the S-REIT sub-sectors with Industrial (+2.55%) and Healthcare (+0.34%) faring the best. In contrast, Retail (-1.38%) and Office (-0.65%) underperformed for two consecutive weeks. With regards to the pandemic, Singapore is experiencing a new wave of infections as the 7-day moving average of total COVID-19 cases steadily climbed to nine thousand cases. 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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