Weekly Commentary: 29 Jan 2024 – 4 Feb 2024
Last week, key central banks like the European Central Bank, Norway Central Bank, and Canada held their key policy rate steady at 4%, 4.5% and 5% respectively. Expectations are that as inflation cools, central banks will start to cut rates. Cutting rates will result in a few scenarios: Currency depreciation, stocks will rise due to a lower risk-free rate and cost of financing will be lower. Rate cuts will also benefit Europe’s embattled economy as it has stagnated for more than a year.
America’s economy remains strong as their economy grew at an annualized rate of 3.1% however, prices have come down as the Commerce Department has reported that PCE had been 0.2% in December, with the one-year rate of increase at 2.6%, falling below 3% since early 2021. Regardless of the market cycles, over the long term, quality has 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 allocation 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 (+0.65%), S&P 500 Index (+1.07%), and NASDAQ Composite Index (+0.94%). Other notable key market indices that generated positive returns consist of the Straits Time Index (+0.23%) & Hang Seng Index (+4.20%). All S&P 500 sectors registered mixed returns last week with notable sectors – Communication Services (+4.52%), Financials (+1.89%), and Energy (+5.15%) rising more than the rest of the sector.
The yield curve remains inverted as the 10Y-2Y US Treasury spread tightened for the week at -0.21%. driven by U.S 2-year and 10-year Treasury yields falling 4 bps to 4.35% and rising 1 bps to 4.14% respectively. Market sentiment also became more risk-on as the U.S. High Yield (HY) – Investment Grade (IG) credit spread tightened 10 bps to 2.33% while the CBOE Volatility Index (VIX) fell 4 bps to 13.26%.
The global REITs market’s return was mostly in the mix across the numerous benchmarks. Hang Seng REIT Index (-0.33%) and MSCI US REIT Index (-0.67%) are the notable REITs that generated negative returns over the past week. Closer to home, the iEdge S-REIT Index (-0.94%) and most of its subsectors generated negative weekly returns with Real Estate Operating Companies (-2.73%) and Data Center REITs (-1.98%), 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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