Weekly Commentary: 5 December 2022 – 11 December 2022
Stocks rallied after Powell’s remarks that suggest a lower rate hike in December which the market has priced in at 50 bps. Both the U.S. headline and core Personal Consumption Expenditure (PCE) index have also slowed down by 0.3 pp to 6% YoY and by 0.2 pp to 5% YoY respectively in October. However, some of the gains were surrendered after the U.S. November jobs report showed that non-farm payrolls have rose above expectations while the unemployment rate has been mostly unchanged MoM, essentially indicating that the Fed’s aggressive monetary policy has done little to cool down the labor market so far. Nevertheless, stocks ended the week in the positive with growth stocks as loosely represented by the NASDAQ Composite Index (+2.21%) leading in front of the S&P 500 Index (+1.19%) and the Dow Jones Industrial Average (+0.41%). Other key market indices including the STI (+0.45%) and the Hang Seng Index (+6.29%), have reported positive weekly returns as well. The Hong Kong stock market gains were driven by China’s COVID pivot that saw eased restrictions in the top-tier cities. All eleven S&P 500 sectors were also mostly positive except for Energy (-1.89%) and Financials (-0.55%). Energy continued to lag as oil futures in the WTI and Brent crude remained near 2022 lows. In contrast, Communication Services (+3.32%), Consumer Discretionary (+2.22%), and Healthcare (+1.96%) were the top-performing sectors.
The yield-curve continued to be inverted as the 10Y-2Y US Treasury spread inversion remained unchanged at around -0.78% although both the U.S 2-year and 10-year Treasury yield fell by 12 bps to 4.31% and by 11 bps to 3.53% respectively. Despite the U.S. High Yield (HY) – Investment Grade (IG) credit spread slightly widened by 3 bps to 3.08%, the stock market remained risk-on as the CBOE Volatility Index (VIX) cooled down by 144 bps to 19.06% by Friday.
Market focus will be on the outcome of the upcoming Fed’s December policy meeting where investors will try to derive hints on the Fed’s next move. Many are hoping that the Fed will ease its tightening pace given the weakening economy, but ultimately inflation is still at a staggering high globally although recent data has shown deceleration in some key markets. 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. 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. Almost all of the S&P 500 companies have reported their results for 3Q22 where around 71% and 70% of the companies have reported positive revenue and earnings surprise respectively.
As can be seen below, most of the global REIT markets delivered mostly negative returns but yield spreads remained positive overall. Back at home, the iEdge S-REIT Index’s (-0.28%) and its subsectors ended the week lower with the exception of Diversified (+2.10%), Industrial (+0.87%), and Office (+0.84%). On the other hand, Hospitality (-2.16%) and Healthcare (-1.21%) 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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