Weekly Commentary: 27 February 2023 – 05 March 2023
The S&P 500 Index suffered its worst weekly loss since early December. The index had surrendered roughly 35% of the rally that began in October but remained up 3.4% year-to-date. The global bond market rally since the start of the year has fizzled out as mounting signs of persistent inflation force investors to reverse their views on the likely path of interest rate rises however the rally has dissipated after a scorching US labour market report earlier this month. At the start of the year, people were angling for an end to the US Federal Reserve and other major central banks would end their aggressive campaign of monetary policy tightening but stronger economic activity and slower progress on inflation than previously expected could keep the Fed raising rates longer than anticipated before the recent reports. In the minutes of the US Federal Reserve meeting, the officials expect to keep raising rates this year. Gross domestic product, a broad measure of the goods and services produced across the US rose at a 2.7% annual rate in the fourth quarter, adjusted for seasonality and inflation, the Commerce Department said Thursday, down from a previous estimate of 2.9% growth, and slower than the third quarter’s 3.2% growth. Elevated interest rates have not deterred consumers and employers, the University of Michigan’s gauge of consumer expectations in February was revised higher to its best level in over a year, sales of new single-family homes also reached their highest level since March 2022.
Stock returns were down over the last week as observed across the following 3 indices, with the Dow Jones Industrial Average (-2.97%), S&P 500 Index (-2.31%), and NASDAQ Composite Index (-3.31%). Most of the major key market indices were in negative territory last week. 3 notable S&P 500 sectors registered losses this week – Consumer Discretionary (-4.43%), Real Estate (-3.78%), and Communication Services (-4.37%) Main outperformers for the week were from subsectors such as Consumer Discretionary (+1.66%) only. 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 widened 7bps to -0.87%, driven by U.S 2-year and 10-year Treasury yields rising 18bps to 4.80% and 11 bps to 3.93% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 9bps to 2.96% while the CBOE Volatility Index (VIX) has jumped 165bps to 21.67%.
The global REIT markets returns were mixed over the past trading week. Closer to home, the iEdge S-REIT Index (+0.46%) and all of its subsectors generated mixed weekly returns. Healthcare (+1.24%), Industrial (+1.23%), and Retail (+0.59%) were the positive gainers for the last week whereas, Hotel & Resort (-1.81%), Diversified (-1.76%) and Office (-1.51%) was the sectors that dipped. 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.
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