Weekly Commentary: 10 April 2023 – 16 April 2023
Stocks climbed higher last week as the U.S. Labor Department report indicated signs of a cooling labor market. But the sentiment has become more cautious due to the heightened recession worries. The surprise OPEC+ cut on oil output has also fuelled concerns on the inflation rate. As a result, Value as loosely represented by the Dow Jones Industrial Average (+1.96%) outperformed as a result, followed by the S&P 500 Index (+1.38%) and the NASDAQ Composite Index (+0.64%). Other global key market indices were largely unchanged, but the Singapore stock market as indicated by the STI (+1.35%) managed to edge out the Hang Seng (+0.15%) and ASEAN market index (+0.42%) overall.
The S&P sectors mostly delivered positive performance with the exception of Industrial (-2.09%) and Consumer Discretionary (-0.41%). InfoTech (+0.33%) made up the bottom three underperformers. In the other hand, the defensives – i.e. Healthcare (+4.27%) and Utilities (+3.90%), in addition to Communication Services (+4.68%) outperformed. Energy (+3.68%) also surged on the oil production output cut news and as the WTI and Brent continued to trend higher than their short-term averages.
The yield-curve continued to be inverted as the 10Y-2Y US Treasury spread slightly widened 2 bps to -0.58%. However, both the U.S. 2-year and 10-year Treasury yields have eased by 7 bps and 10 bps to 3.95% and 3.37% respectively. The yield-curve inversion has continued since July 2022, and the dynamic has preceded the previous eight U.S. recessions. Market sentiment has turned more cautious as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened by 8 bps to 3.25%, although the CBOE Volatility Index (VIX) has continued to cool down by 30 bps to 18.40%, below its 20-day EMA of 20.38%. The HY-IG credit spread stayed above its 5-year average of 2.85%.
Market focus next will be mainly targeted to the start of the 1Q23 earnings announcements, notably from some of the big players in Financials such as BlackRock, Citigroup, and JPMorgan Chase. On Wednesday, the Bureau of Labor Statistics will also release the U.S. headline and core CPI data for March, where market consensus for both to be at 5.2% and 5.6% respectively. The FOMC March meeting minutes will also be slated for release on the same day.
The global REIT markets delivered positive returns overall with the exception of Canada and Thailand. For the Singapore REIT market, the iEdge S-REIT Index (+1.22%) and all of its subsectors were in the positives as well except for Healthcare (-0.28%). In the other hand, Hospitality (+2.96%) and Office (+1.28%) were the top performing subsectors. 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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