Weekly Commentary: 03 January 2023 – 08 January 2023
Markets were largely range-bound over the holiday-shortened trading week as recessionary fears and surging Covid-19 infection cases within China post-reopening exerted a dampening effect on market sentiments. Initial jobless claims data announced within the week came in at 225K, representing an increase of 9K from the week earlier. Continuing claims data was also higher at 1.71m, compared to the 1.67m just the week prior. Earlier in the month, the U.S. Commerce Department revised up its 3Q22 GDP growth to 3.2% from the previously reported 2.9% whereas the most current weekly jobless claims data are still indicative of a robust U.S. economy and tight labor market. The Fed’s preferred inflation gauge – the Personal Consumption Expenditure (PCE) index, has both of its headline and core rate slowed by 0.6 pp to 5.5% YoY and by 0.3 pp to 4.7% YoY respectively in November, but the figures are still far from the Fed’s target of 2%. Globally, the International Monetary Fund projected slowing global growth momentum with economic expansion expected to come in at 2.7% for 2023, weakening from the 3.2% for 2022.
In light of this, stock returns were slightly lower over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (-0.17%), S&P 500 Index (-0.12%) marginally outperforming the NASDAQ Composite Index (-0.28%). Other key market indices that generated positives returns consist of the MSCI AC ASEAN (+1.38%) and Hang Seng Index (+0.96%). Most of the eleven S&P 500 sectors saw returns in the negative territory, with the exception of Financials (+0.72%) and Energy (+0.60%). Main underperformers for the week were from subsectors such as Materials (-1.08%), Consumer Staples (-0.83%) and Utilities (-0.59%). For 2022 as a whole, index returns were negative for the Dow Jones Industrial Average (-8.78%), S&P 500 (-19.44%) and the NASDAQ Composite (-33.10%).
The yield-curve remains inverted as the 10Y-2Y US Treasury spread fell further by 2 bps to -0.55%, driven by U.S 2-year and 10-year Treasury yields climbing by 5 bps to 4.43% and 3bps to 3.87% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened by 22bps to 3.39% while the CBOE Volatility Index (VIX) has inched higher by 2bps to 21.67%.
The conclusion of the December FOMC meeting saw the Federal Reserve raise Federal Fund rates by 50bps to 4.00-4.25%, in the process dashing hopes of market participants leaning towards a policy pivot by revising up the terminal policy rate guidance from the 4.6% in September 2022 to the current 5.1% and warning that the restrictive policy rate will be sustained at elevated levels well into 2024. The FOMC also revised lower its forecast for 2022 economic growth the US from 1.2% to 0.5%, while reiterating their intent to ease policy tightness only after there is adequate evidence of inflationary pressures being well and truly brought under control. In November, the U.S. core CPI has decelerated by 0.2 pp MoM to 6.0% YoY while headline CPI also slowed down to 0.1 pp MoM to 7.1% YoY. 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. With all of the S&P 500 companies having reported their results for 3Q22, around 71% and 70% of the companies have since reported positive revenue and earnings surprise respectively.
Most of the global REIT markets delivered positive weekly returns with the yield spreads remaining positive. Closer to home, the iEdge S-REIT Index (+1.09%) and its subsectors mostly generated positive weekly returns with Hospitality (+2.57%), Healthcare (+1.53%) and Industrial (+1.34%) leading performances. On the other hand, Diversified (-0.58%) was the sole subsectors that recorded a decline during the period. REITs generally have been affected by decreasing yield spread as interest rates surged and investors price in the possibility of reduced distributions stemming from higher financing costs. However, we do expect inflows to return to the sector given the existing attractive valuations on offer and resilience offered by the REIT asset class in light of the waning global growth outlook.
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.