Weekly Commentary: 26 September 2022 – 30 September 2022
The stock market continued to experience a brutal sell-off last week due to recession and rate hikes worries. On Wednesday, the U.S. Federal Reserve announced a 75 bps hike on its benchmark interest rate, elevating the target range to 3.00%-3.25%, the highest since March 2008. As a result, growth stocks as loosely represented by the NASDAQ Composite (-5.06%) fared worst again, followed by the S&P 500 (-4.63%) and the Dow Jones Industrial Average (-4.00%). Other key market indices including the STI (-1.26%) and Hang Seng (-4.35%) were in the negative as well. All eleven S&P 500 sectors reported negative returns with the defensives such as Consumer Staples (-2.15%), Utilities (-2.99%), and Healthcare (-3.36%) holding up the best. In contrast, Energy (-9.00%), Consumer Discretionary (-7.01%), and Real Estate (-6.37%) were the worst hit sectors. Energy’s underperformance came as WTI dropped to the lowest level since January.
Market focus this week will be mostly on the August U.S. Personal Consumption Expenditure (PCE) data release, in addition to other economic releases. The Fed’s preferred inflation gauge seemed to have previously peaked as both July’s headline and core PCE decelerated by 0.5 pp to 6.30% YoY and by 0.4 pp to 4.60% YoY respectively. Nevertheless, rising energy prices remained a concern as it is the primary driving force behind the elevated inflation level. Singapore’s CPI in August has accelerated by 0.5 pp MoM to 7.5% YoY, the highest since the GFC, while MAS core inflation also moved up by 0.3 pp to 5.1% 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 further fell by 12 bps to reach -0.53% last week. Both the U.S 2-year and 10-year treasury yield increased by 43 bps to 4.30% and by 31 bps to 3.76% respectively. The overall stock market sentiment remained risk-off with an uptrend in volatility as the global High Yield (HY) – Investment Grade (IG) spread widened by 21 bps to 3.66% and the CBOE Volatility Index (VIX) surged 362 bps to 29.92%.
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 Hospitality (+0.53%). Diversified SREITs (-1.31%) also comparatively held up better as well. In the other hand, Healthcare (-4.02%) and Industrial (-3.72%) were the worst performing 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 three weeks.
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