Weekly Commentary: 02 Jan 2024 – 07 Jan 2024
The last week of the year continued to be positive for the stock market. All major equity indices reported positive weekly gains with the DJIA (+0.81%) leading in front of the S&P 500 (+0.34%) and Nasdaq Composite (+0.17%). However, growth as loosely represented by the Nasdaq Composite outperformed the other indices YTD, driven by the recent dovish stance from the Fed. The S&P 500 sectors reported mixed returns with the defensives such as Utilities (+1.21%), Consumer Staples (+1.11%), and Healthcare (+0.97) being the top performers. In contrast, Energy (-1.37%), Consumer Discretionary (-0.43%), and Communication Services (-0.4%) underperformed. Closer to home, Hang Seng (+4.33%) and STI (+3.18%) both outperformed the other broad market indices for the week, but still lagging behind overall in terms of YTD performance.
Other market indicators have indicated that market sentiment has turned more positive and risk-on. The yield-curve remains inverted but the 10Y-2Y US Treasury spread has contracted by 14 bps to -0.37%, driven by U.S 2-year and 10-year Treasury yields falling by 19 bps to 4.25% and by 5 bps to 3.88% respectively. The U.S. High Yield (HY) – Investment Grade (IG) credit spread has also tightened by 12 bps to 2.24%, although the CBOE Volatility Index (VIX) slightly increased by 17 bps to 12.45%.
As we open a new page to 2024, there is plenty of reasons for market sentiment to stay optimistic such as, decelerating inflation, interest rate cuts, and growth in corporate earnings that have been mostly beaten expectations in 2023. Market focus will be on the U.S. labour-market data – i.e. job openings, labor-force survey, nonfarm payrolls, average hourly earnings, and unemployment rate, that will be released next.
The global REIT markets have reported mostly positive weekly gains with the exceptions of the U.K. (-0.02%) and France (-0.02%). The iEdge S-REIT Index (+2.39%) and all of its subsectors were in the positives as well with Data Centre (+4.09%) and Retail (+2.81%) outperformed relatively. On the other hand, Hospitality (+1.38%) and Office (+1.72%) were the lagging subsector for the week. SREITs have experienced a rebound in the past few months as interest rate cuts are on the horizon and due to its oversold valuation levels. The sector 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.
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