Weekly Commentary: 20 March 2023 – 26 March 2023
The major indices closed out mixed over the past week. As the banking crisis unfolds, many investors fled to safe assets as yields on 2-year treasury bills and 10-year treasury bills were down to 3.95% and 3.48% respectively. The fall in yields was 63 bps and 22 bps, respectively. The drop-in retail sales and easing price pressures in February also show preliminary signs of a cooling economy. Questions about whether the Federal Reserve will continue to raise interest rate also comes into question. The Fed will meet this coming week, March 21-22, and discuss whether the recent bank crisis warrants more interest-rate hikes or slow down the raising of interest rates. Central bank focus has also shifted from inflation to stresses in the financial system and whether the collapse of Silicon Valley Bank will lead to more systematic risk.
Stock returns were down over the last week as observed across the following 3 indices, with the Dow Jones Industrial Average (-0.11%), S&P 500 Index (1.47%), and NASDAQ Composite Index (4.44%). Most of the major key market indices were in positive territory last week. 3 notable S&P 500 sectors registered positive returns this week – Information Technology (+5.67%), Utilities (+3.96%), and Communication Services (+6.95%) Main losers for the week were from subsectors such as Energy (-6.96%), Financials (-6.04%) & Materials (-3.42%) 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 tightened 41 bps to -0.47%, driven by U.S 2-year and 10-year Treasury yields falling 63bps to 3.95% and 22 bps to 3.48% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 37bps to 3.51% while the CBOE Volatility Index (VIX) has jumped 71bps to 25.51%.
The week ahead will be on the Commerce Department release of the number of new homes sold in February, which make up about 10% of the housing market. Japan’s statistics agency and UK’s Office for National Statistics will also release February’s inflation figures.
The global REIT markets returns were mixed over the past trading week. Closer to home, the iEdge S-REIT Index (+0.48%) and all of its subsectors generated mixed weekly returns. Data Center (+0.55%), Industrial (+0.47%), and Retail (+0.46%) were the positive gainers for the last week whereas, Real Estate Operating Companies (-0.92%), Diversified (-1.41%), and Office were 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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