Weekly Commentary: 15 Jan 2024 – 21 Jan 2024
Major US equity benchmarks were positive over the last week. US retail sales rose 0.6% in December from a month earlier as rising wages and cooling inflation bolsters purchasing power of consumers. The Federal Reserve is on track to keep rates steady at its meeting next week and consumer spending are expected to persist, supported by a solid labour market and rising wages coupled with expectations of at least 3 rate cuts by officials. REITs benefitted enormously as the reversal of yield will lower their expenses, enabling them to pay more dividends.
Companies’ profit margin are also expected to rebound as they were affected by higher costs and uneven consumer demand. As cost cutting takes into effect, 2024 will see higher margins from companies that have finished their cost-restructuring efforts. Regardless of the market cycles, over the long-term, quality have outperformed growth and value. Our Phillip Global Quality Fund focuses on high quality companies that will deliver a high level of return on past investments and have astute capital allocations skills to benefit shareholders. The Fund was up 23.19% in 2023.
Stock returns were positive over the week as observed across the following 3 indices, with the Dow Jones Industrial Average (+0.76%), S&P 500 Index (+1.19%), NASDAQ Composite Index (+2.26%). Other notable key market indices that generated negative returns consist of Straits Time Index (-1.24%) & Hang Seng Index (-5.76%). All S&P 500 sectors registered mixed returns last week with notable sectors – Information Technology(+4.32%), Financials (+0.95%) and Communication Services (+1.95%) rising more than the rest of the sector.
The yield-curve remains inverted as the 10Y-2Y US Treasury spread widened for the week of -0.27%. driven by U.S 2-year and 10-year Treasury yields rising 24 bps to 4.39% and 18 bps to 4.11% respectively. Market sentiment also became more risk-off as the U.S. High Yield (HY) – Investment Grade (IG) credit spread widened 9 bps to 2.47% while the CBOE Volatility Index (VIX) rose 60 bps to 13.30%.
This coming week, Bank of Canada and European Central will announce their decision on interest rate. Korea and US will announce their Q4 GDP figures on the same day on Thursday.
The global REITs market’s return were mostly in the mixed across the numerous benchmarks. Hang Seng REIT Index (-5.65%) and FTSE EPRA Nareit France Index (-2.51%) are the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (-2.78%) and most of its subsectors generated negative weekly returns with Office REITs (-3.85%) and Industrial REITs (-2.91%), the notable sector that underperformed the rest last week. 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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