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.
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.