Weekly Commentary: 12 September 2022 – 18 September 2022
Stocks rebounded last week as investors bought into the weakness caused by the hawkish statement from the Fed two weeks back. Growth stocks as loosely represented by the NASDAQ Composite (+4.15%) had the best gain, followed by the S&P 500 (+3.68%) and the Dow Jones Industrial Average (+2.72%). Other key market indices including the STI (+1.79%) were in the positive with the exception of Hang Seng (-0.05%). All eleven S&P 500 sectors reported positive returns with Consumer Discretionary (+5.63%), Materials (+5.03%), and Financials (+4.42%) outperforming the rest. In contrast, Energy (+0.73%), Consumer Staples (+2.85%), and Communication Services (+2.85%) were the bottom three sectors. Energy underperformed as oil price briefly hit the lowest level since the start of the Ukraine-Russia conflict.
Market focus are now on the U.S. inflation data that will be released on Tuesday. A deceleration from July’s 8.5% (headline) and 5.60% (core) would indicate that the Fed’s tightening policy has shown some effectiveness in reducing consumer spending. The Fed’s preferred inflation gauge – U.S. Personal Consumption Expenditure (PCE), seemed to have previously peaked as well 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. Nevertheless, rising energy prices remained a concern as it is the primary driving force behind the elevated inflation level. 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 fell by 3 bps to reach -0.23% last week. Both the U.S 2-year and 10-year treasury yield increased by 17 bps to 3.39% and by 13 bps to 3.19% respectively. The overall stock market sentiment returned more positive and risk-on with a slight downtick in volatility as the global High Yield (HY) – Investment Grade (IG) spread contracted by 40 bps to 3.08% and the CBOE Volatility Index (VIX) dropped 268 bps to 22.79%.
As can be seen below, most of the global REIT markets were in the positive with the exception of Thailand, UK, and Germany. The overall 12-month yield spreads also remained positive and favorable towards forward total returns. Back at home, the iEdge S-REIT Index (+1.93%) and all of its subsectors reported positive returns with the exception of Healthcare (-0.52%). Diversified (+0.02%) relatively underperformed as well. In the other hand, Industrial (+2.70%) and Retail (+2.53%) were the top two subsectors. With regards to the pandemic, the 7-day moving average of total COVID-19 cases stayed elevated, but continued to hover around two thousand cases for the past two weeks.
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