Weekly Commentary: 06 March 2023 – 12 March 2023
Comments from Atlanta Federal Reserve President Raphael Bostic last week have appeared to trigger a stocks rally last week. He stated that he still supported only a quarter-point rate hike at the Fed’s upcoming policy meeting despite January’s hot inflation data. He also stated that the “Fed could be in a position to pause by mid to late summer.” As a result, stocks had a positive rebound last week with growth stocks as loosely represented by the NASDAQ Composite Index (+2.61%) leading the pack while the S&P 500 (+1.96%) and the Dow Jones Industrial Average (+1.85%) trailed closely behind as well. In contrast, most of the major key market indices including the STI (-1.53%) continued to remain in negative territory with the Hang Seng Index (+3.07%) being the sole exception. Zooming into the S&P 500 sectors, all delivered positive weekly returns with the exception of Consumer Staples (-0.32%) and Utilities (-0.51%). Defensives underperformed overall as Healthcare (+0.52%) was also in the bottom three. On the other hand, Materials (+4.20%), Industrials (+3.34%), and Communication Services (+3.28%) were the top performers.
The yield-curve continued to be inverted since the second half of 2022 with the 10Y-2Y US Treasury spread slightly widening by 3 bps to -0.90% last week. The U.S 2-year Treasury Yield rose by 3 bps to 4.85% while the 10-year Treasury remained unchanged. Market sentiment turned more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 19 bps to 2.77% while the CBOE Volatility Index (VIX) also cooled down by 318 bps to 18.49%. The recently released economic data has been mixed where the manufacturing sector is shown to be contracting at a slower rate while pending home sales reported a second month of gains.
The global REIT markets returns were mixed over the past trading week. Closer to home, the iEdge S-REIT Index (-0.72%) subsectors reported rather mixed returns with Healthcare (+0.88%), Specialized/Pureplay DCs (+0.26%) and Hospitality (+0.23%) being the top outperformers whereas, Retail (-1.11%) and Industrial (-0.99%) were the subsectors that lagged in the index. 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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