Weekly Commentary: 28 November 2022 – 04 December 2022
Stocks have mostly ended higher last week where value stocks as loosely represented by the Dow Jones Industrial Average (+1.80%) continued to lead in front of the S&P 500 Index (+1.56%) and the NASDAQ Composite Index (+0.73%). Other key market indices have also managed to report positive weekly gains, except for the STI (-0.85%) and the Hang Seng Index (-2.27%%). The Hong Kong stock market was sent lower amid the unrest in China over its continued zero-COVID policy. All eleven S&P 500 sectors are in the positive as well where Energy (+0.26%) and the growth sectors such as InfoTech (+0.99%) and Communication Services (+1.01%) relatively underperformed. Energy’s lagged as oil futures in the WTI and Brent crude fell to near 2022 lows. Meanwhile, Utilities (+3.13%), Materials (+2.98%), and Financials (+2.19%) were the best-performing sectors as the market continued to be cautious amidst the current rising interest rate environment and global economic slowdown.
The yield-curve continued to be inverted as the 10Y-2Y US Treasury spread inversion further widened by 6 bps to -0.79% last week although both the U.S 2-year and 10-year Treasury yield fell by 9 bps to 4.43% and by 15 bps to 3.64% respectively. The stock market was still on risk-on mode as the U.S. High Yield (HY) – Investment Grade (IG) credit spread continued to contract by 10 bps to 3.05% and the CBOE Volatility Index (VIX) also cooled down by 262 bps to 20.50% by Friday.
Market focus next will be mainly on the release of new economic data such as the U.S. November’s jobs reports and the Fed’s preferred inflation gauge – October’s Personal Consumption Expenditure (PCE). Powell is also scheduled to discuss the U.S. economy and the labor market on Wednesday where investors will try to derive further hints on the next December’s rate hikes and beyond. Many are hoping that the Fed will ease its tightening pace given the weakening economy and the stock market rally will continue if this is the case, but ultimately inflation is still staggering high globally although recent data has shown deceleration in some key markets. In October, the U.S. core CPI 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%. In Singapore, both the CPI and MAS core inflation in October have slowed by 0.8 pp and 0.2 pp MoM to 6.7% and 5.10% YoY respectively. Furthermore, 3Q22 earnings updates have mostly been positive and have lifted market sentiment in the past few weeks. 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 earnings 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 its subsectors ended the week lower with the exception of Hospitality (+0.01%). Specialized (-0.43%) or pureplay DC SREITs have also held up better compared to the rest. On the other hand, Healthcare (-4.34%), Office (-2.70%), and Industrial (-2.61%) were the worst-hit subsectors for the week. REITs overall have 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.
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