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Weekly Outlook

Weekly Outlook 12 December 2022 -18 December 2022

Weekly Commentary: 12 December 2022 – 18 December 2022

Stocks ended lower last week over fears of further monetary policy tightening and recession moving into the new year. As a result, value stocks as loosely represented by the Dow Jones Industrial Average (-2.21%) fared best, in front of the S&P 500 Index (-3.35%) and the NASDAQ Composite Index (-3.98%). Other key market indices including the STI (-0.34%) have also reported negative weekly returns except for the Hang Seng Index (+6.56%). The Hong Kong stock market continued to ride on the positive China’s reopening sentiment that saw eased COVID restrictions in the major cities for the past two weeks. All eleven S&P 500 sectors were in the negatives as well with Energy (-1.89%) and the growth sectors such as Communication Services (-5.39%) and Consumer Discretionary (-4.47%) being the top underperformers. Energy underperformed as WTI and Brent futures fell to the lowest level since the start of this year. In contrast, the defensives such as Utilities (-0.27%), Healthcare (-1.28%), and Real Estate (-1.77%) were the sectors that held up the best.

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 rose by 2 bps to 4.33% and 3.55% each. The U.S. High Yield (HY) – Investment Grade (IG) credit spread have also mostly remained stagnant, slightly contracting by 1 bps to 3.07%. But the stock market sentiment turned more risk-off as the CBOE Volatility Index (VIX) cooled down by 144 bps to 19.06% by Friday.

Market focus will be on the latest data on U.S. November inflation or CPI data and outcome of the FOMC meeting where the Fed is expected to announce a 50 bps increase in its benchmark interest rate and its latest summary of economic projections. Expect stocks to rally if the U.S inflation shows further deceleration and the meeting minutes show hints of a Fed pivot. 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. 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. In Singapore, both the CPI and MAS core inflation have slowed by 0.8 pp and 0.2 pp MoM to 6.7% and 5.10% YoY respectively for the same month. 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 mixed returns but yield spreads remained positive overall. Back at home, the iEdge S-REIT Index’s (+0.82%) and its subsectors reported positive weekly returns with the exception of Healthcare (-0.07%) and Office (-0.08%). In the other hand, Specialized or pureplay DCs (+4.41%) and Hospitality (+3.54%) were the top 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.

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