Weekly Commentary: 19 September 2022 – 25 September 2022
The stock market dipped last week as a reaction to the August U.S. inflation data that was released on Tuesday. The U.S. CPI or headline inflation slowed to 8.3% YoY, from July’s 8.5% YoY. However, the CPI index rose 0.1% MoM while the core inflation rate also accelerated to 6.3% YoY, from 5.9% the prior month. As a result, growth stocks as loosely represented by the NASDAQ Composite (-5.46%) fared worst, followed by the S&P 500 (-4.73%) and the Dow Jones Industrial Average (-4.11%). Other key market indices including the Hang Seng (-3.07%) were mostly in the negative with the exception of the STI (+0.16%). All eleven S&P 500 sectors reported negative returns with the defensives such as Healthcare (-2.32%) and Consumer Staples (-3.48%), in addition to Energy (-2.59%) holding up the best. In contrast, Materials (-6.64%), Industrials (-6.37%), and other growth sectors such as Communication Services (-6.42%) and InfoTech (-6.11%) were the worst hit.
Market focus is now on the upcoming 24th September FOMC meeting, with most expecting the next hike to be between 75 to 100 bps given the persisting inflation. 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 as the 10Y-2Y US Treasury fell by 19 bps to reach -0.42% last week. Both the U.S 2-year and 10-year treasury yield increased by 48 bps to 3.87% and by 26 bps to 3.45% respectively. The overall stock market sentiment turned risk-off with a sharp jump in volatility as the global High Yield (HY) – Investment Grade (IG) spread widened by 37 bps to 3.45% and the CBOE Volatility Index (VIX) surged 351 bps to 26.30%.
As can be seen below, most of the global REIT markets were in the negative with the exception of Japan. However, the overall 12-month yield spreads also remained positive and favorable towards forward total returns. Back at home, the iEdge S-REIT Index (-1.21%) and all of its subsectors also reported negative returns with the exception of Diversified (+0.69%). Retail (-1.26%) also relatively held up better as well. In the other hand, Hospitality (-4.90%) and Healthcare (-2.04%) underperformed. 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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