Weekly Commentary: 07 November 2022 – 13 November 2022
Stocks retracted last week as the market reacted to the latest FOMC announcement where the Federal Reserve has hiked its benchmark interest rate for the sixth time this year at 75 bps, the fourth consecutive hike of this size year. Powell’s largely hawkish tone has killed any market expectations of an impending pivot in the near term, in addition to the mounting concerns that the Fed is oversteering the economy passing the point of no return. U.S. October jobs report also remained strong although the U.S. labor market has shown a slower pace of hiring and higher unemployment – Around 261,000 jobs were added in October and the unemployment rate rose by 0.2 pp to 3.7% MoM. As a result, growth stocks as loosely represented by the NASDAQ Composite Index (-5.61%) fared worst and lagged the S&P 500 Index (-3.31%) and the Dow Jones Industrial Average (-1.38%). The other key market indices including the STI (+2.40 %) and the Hang Seng Index (+8.74%), however, managed to deliver positive returns. All eleven S&P 500 sectors mostly reported negative returns with the exception of Energy (+2.41%), Materials (+0.86%), and Industrial (+0.45%). Unsurprisingly, the growth sectors – i.e. Communication Services (-7.44%), InfoTech (-6.84%), and Consumer Discretionary (-5.77%), were the worst hit last week.
The yield-curve continued to be inverted as the 10Y-2Y US Treasury spread further fell by 8 bps to -0.50% last week. Both the U.S 2-year and 10-year Treasury yields rose by 23 bps to 4.68% and by 14 bps to 4.16% respectively. The stock market also turned risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened by 13 bps to 3.10%, although market volatility as shown the CBOE Volatility Index (VIX) has slightly went down by 120 bps to 24.55%.
Market focus next will be on the release of U.S. October Consumer Price Index (CPI) data where it would be a positive for stocks if we see a deceleration from September as it would show that the Fed’s tightening has worked to some degree, although we expect this to be unlikely due to the rising energy prices last month. In September, the U.S. core CPI has accelerated faster by 0.3 pp to 6.6% YoY above market expectation, while headline CPI slowed down by 0.1 pp to 8.2% YoY. The Fed’s preferred inflation gauge – the U.S. Personal Consumption Expenditure (PCE), has its headline rate unchanged at 6.20% YoY in August, but core PCE climbed by 0.20 pp to 5.10% YoY, well above the Fed’s target range of 2%. Globally, rising energy prices remained a concern as it is the primary driving force behind the rising inflation level. Singapore’s CPI in September was unchanged MoM at 7.5% YoY, the highest since the GFC, while MAS core inflation moved up by 0.2 pp to 5.3% YoY. There are also the rest of the 3Q22 earnings announcements where we can expect a more positive market sentiment if the outlook of corporate earnings remained bright enough to offset the aftereffects of the Fed’s policy tightening. So far the earnings season has been mostly positive – around 85% of the S&P 500 companies have reported actual results for 3Q22 where around 71% and 70% of them have reported positive Revenue and EPS surprises respectively.
As can be seen below, most of the global REIT markets delivered positive returns with the exception of Singapore, U.S. and Canada. Back at home, the iEdge S-REIT Index’s (-1.70%) and most of its subsectors ended the week lower with the exception of the Hospitality (+2.16%) and Diversified SREITs (-0.02%) that held up the best. In contrast, Office (-4.64%) and Specialized/Pureplay DCs (-3.23%) SREITs were the worst performing subsectors. REITs overall has been affected by decreasing yield spread as interest rates surged and investors pricing in the possibility of reduced distributions from the increased financing costs, but we do expect inflows to return to the sector when market sentiment improves due to the attractive valuations and yields. With regards to the pandemic, the 7-day moving average of total COVID-19 cases stayed elevated due to the highly transmissible XBB variant, but has been trending down at around four thousand cases. However, there were no further announced changes to the current COVID-19 measures although Health Minister Ong Ye Kung had stated that Singapore “cannot rule out” measure retightening such as the wearing of face masks indoors in the coming weeks.
This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.
An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.
Investments are subject to investment risks including the possible loss of the principal amount invested, and are not obligations of, deposits in, guaranteed or insured by PCM or any of its subsidiaries, associates, affiliates or PDs. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved. Any use of financial derivative instruments will be for hedging and/or for efficient portfolio management. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products. The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.
The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.
The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. This advertisement has not been reviewed by the Monetary Authority of Singapore.