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Weekly Outlook

Weekly Outlook 21 November 2022 – 27 November 2022

Weekly Commentary: 21 November 2022 – 27 November 2022

Stocks ended mostly lower last week. Value stocks as loosely represented by the Dow Jones Industrial Average (+0.11%) fared better than the S&P 500 Index (-0.61%) and the NASDAQ Composite Index (-1.50%). Other key market indices including the STI (+1.51%) and the Hang Seng Index (+3.85%) also managed to close with positive gains. All eleven S&P 500 sectors mostly reported negative returns with the exception of the defensives such as Consumer Staples (+1.73%), Healthcare (+1.03%), and Utilities (+1.08%). Meanwhile, Consumer Discretionary (-3.11%), Energy (-1.85%), and Real Estate (-1.76%), were the worst hit sectors as market outlook continued to be weighed down by rising interest rate and global economic slowdown. Energy underperformed as inventories reached near-peak levels.

The yield-curve continued to be inverted as the 10Y-2Y US Treasury spread further fell by 21 bps to -0.72% last week as the U.S 2-year Treasury yield climbed 11 bps to 4.52% but the 10-year dropped 10 bps to 3.90%. The stock market also turned slightly more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread contracted by 6 bps to 3.15%, although market volatility as shown the CBOE Volatility Index (VIX) has slightly jumped by 60 bps to 23.12%.

Market focus next will be mostly on the release of the FOMC November’s meeting minutes which was previously concluded by raising the federal funds rate by 75 bps to a range of 3.75% to 4%. The report will give hints on the Fed’s stance on combating inflation and expectations on the upcoming meeting. In October, the U.S. core CPI has decelerated by 0.3 pp MoM to 6.3% YoY while headline CPI also slowed down by 0.5 pp MoM to 7.7% YoY. The Fed’s preferred inflation gauge – the U.S. Personal Consumption Expenditure (PCE), has its headline rate unchanged at 6.20% YoY in September, 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 94% of the S&P 500 companies have reported actual results for 3Q22 where around 71% and 69% of them have reported positive Revenue and EPS surprise respectively.

As can be seen below, most of the global REIT markets delivered mixed returns but yield spreads remained positive overall. Back at home, the iEdge S-REIT Index’s (+0.97%) and most of its subsectors reported positive returns with the exception of the Healthcare (-1.87%) and Hospitality (-0.92%%). In the other hand, Diversified (+2.49%) and Retail (+2.00%) SREITs were the best performing subsectors for the week. 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 brightens and due to the more attractive valuations and yields. With regards to the pandemic, the 7-day moving average of total COVID-19 cases stayed elevated but has been trending down at around two thousand cases.

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