Weekly Commentary: 05 September 2022 – 11 September 2022
Stocks continued trending downwards as market sentiment worsened due to the hawkish statement from the Fed two weeks ago. Growth stocks as loosely represented by the NASDAQ Composite (-4.18%) fared worst again, followed by the S&P 500 (-3.23%) and the Dow Jones Industrial Average (-2.85%). Other key market indices including the STI (-1.32%) and the Hang Seng (-3.40%) were in the negative as well. All eleven S&P 500 sectors reported negative returns with the defensives such as Utilities (-1.44%), Healthcare (-1.79%), and Consumer Staples (-2.29%) holding up the best as a result from the recessionary outlook. In contrast, growth sectors such as InfoTech (-4.97%), with the addition of Materials (-4.85%) and Real Estate (-3.92%) were the worst performers due to investors pulling back on their growth estimates.
Eyes are on the U.S. Federal Reserve upcoming 20th-21st September FOMC meeting. The Fed’s preferred inflation gauge – U.S. Personal Consumption Expenditure (PCE), seemed to have peaked where both the headline and core PCE decelerated by 0.5 pp to 6.30% YoY and by 0.4 pp to 4.60% YoY in July respectively. This is a positive as it means that the Fed’s tightening policy has probably shown some effectiveness in reducing consumer spending. Nevertheless, rising energy prices remained a concern as it is the primary driving force behind the elevated inflation level. The U.S. Consumer Price Index (CPI) has slowed down by 0.6 pp MoM to 8.5% YoY in July while core inflation stayed constant at 5.9% YoY. Singapore’s CPI in July has accelerated by 0.3 pp MoM to 7% YoY, the highest since the GFC, while MAS core inflation also moved up by 0.4 pp to 4.8% YoY. Nearly four dozen countries have raised interest rates in the past six months as central banks hope to contain it, but the level is also likely to remain high in the second half of 2022 due to lack of resolutions to the current energy supply constraints.
The yield-curve continued to be inverted although the 10Y-2Y US Treasury rose by 15 bps to reach -0.20% last week. The U.S 2-year treasury yield fell by 7 bps to 3.39% while 10-year increased by 8 bps to 3.19%. The overall stock market sentiment remained risk-off with a slight downtick in volatility as the global High Yield (HY) – Investment Grade (IG) spread continued to widen by 33 bps to 3.48% and the CBOE Volatility Index (VIX) dropped 123 bps to 25.47%.
As can be seen below, the global REIT markets were mostly in the negative with the exception of Malaysia, Thailand, and Germany. However, the overall 12-month yield spreads are largely positive and remained favorable towards forward total returns. Back at home, the iEdge S-REIT Index (-2.14%) and all of its subsectors reported negative returns with Diversified (-0.52%) and Healthcare (-0.76%) being the least affected. In the other hand, Office (-2.78%) and Industrial (-3.04%) underperformed. With regards to the pandemic, the 7-day moving average of total COVID-19 cases stayed elevated, but we continued to see the figure to be down trending, reaching around two thousand cases by the end of the week. Donning of masks has been made to be optional indoors starting last week where it is only required in public transports and healthcare settings.
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