Weekly Commentary: 31 July 2023 – 06 Aug 2023
The stock market saw positive weekly gains across all indices, driven by encouraging new economic data and earnings releases that reinforced the notion of an economic soft landing. The Federal Reserve’s preferred inflation gauge – the U.S. Personal Consumption Expenditures (PCE) price index, has cooled down to a 0.2% MoM and 4.1% YoY increase in June, reporting the slowest gain in almost a year. The employment cost index had also rose below expectations at 1% YoY in 2Q23. So far, around 51% of the companies in the S&P 500 have released their 2Q23 earnings results with 80% of these companies reported actual EPS above estimates, above the 5Y and 10Y average of 77% and 73% respectively. The Fed has also announced a 0.25% increase in its benchmark interest rate, but reassuring inflation data seemed to have built more market confidence on a rate hike pause as the market rallied on Friday.
As a result, growth stocks as loosely represented by the NASDAQ Composite (+2.03%) outperformed both the DJIA (+0.66%) and the representative stock market index such as the S&P 500 (+1.03%) and MSCI World (+0.99%). Other key market indices were in the positive territory as well with Hong Kong’s Hang Seng (4.44%) leading in front of Singapore’s STI (2.83%). All of the S&P 500 sectors registered positive returns last week with the exception for the bottom four underperformers – Utilities (-2.07%), Real Estate (-1.80%) and Healthcare (-0.80%). In contrast, Communication Services (+6.85%), Materials (+1.83%), and Energy (+1.73%) delivered the best weekly gains. Communications Services outperformance was mainly driven by positive 2Q23 earnings release and guidance from its large caps constituents such as Meta and Alphabet/Google.
The yield-curve remains inverted, but we can see that market sentiment has definitely turned more positive because the 10Y-2Y US Treasury spread has contracted by 11 bps to -0.91% last week where the 10Y Treasure yield increase of 15 bps (to 3.98%) has outpaced the 2Y Treasury’s 4 bps increase (to 4.89%). We can see that the market has also turned more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread contracted by 17 bps to 2.56% while the CBOE Volatility Index (VIX) has cooled down by another 150 bps to 13.33%. Market movements in the upcoming week will hang on some of the big techs earnings update such as from Apple and Amazon. We also have a few of upcoming economic data release such as the labour market and PMI updates, in addition to the inflation and GDP readings from the Eurozone, and an interest rate decision from the Bank of England (BoE).
The global REIT markets were mostly in the positives last week except for the Thailand, U.S., U.K., and France property markets. The Singapore REIT market as represented by the iEdge S-REIT Index (+0.89%) and its subsectors also reported positive weekly gains with Office (+2.22%) and Retail (+1.65%) being the top two subsectors. Office outperformance was mainly driven by the rebound in the U.S. Office SREITs – i.e. PRIME and KORE. In the other hand, Hospitality (+0.27%) and Industrial (+0.54%) were the bottom two subsectors for the week.
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