A slow start to the second half

Date: July 5, 2021

  • The Straits Times Index rose 7 points last week to 3,128.95;
  • The S&P 500 chalked up 7 consecutive all-time highs;
  • Market cap of SGX stocks was S$$859b at end of June;
  • US jobs report was received positively but could hasten Fed’s tapering;
  • MAS: Property cooling measures not needed – yet

The Straits Times Index’s first week of July was marked mainly by a large 41-points or 1.33% surge on Wednesday, the last trading day of June, possibly thanks to a 1st half window-dressing push.

Other than that, the market here appeared to largely ignore the optimism shown by Wall Street, where the S&P 500 closed at a seventh consecutive all-time highs on Friday for the first time in 24 years.

Still, Wednesday’s push was sufficient to enable the STI to record a modest 7-points or 0.2% gain for the week at 3,128.95 whilst daily volume remained equally modest, just above the S$1b mark.

Wall Street reacted to a positive June jobs report, but…

The U.S. economy added 850,000 jobs in June, beating forecasts for 675,000, while the unemployment rose to 5.9%, up from 5.8% in May. Average hourly earnings rose just 0.3%, slower than the 0.4% economists had forecast, suggesting that labor pressures might be easing.

All three benchmarks on Friday climbed to new all-time highs ahead of the US holiday weekend, with the Dow Jones Industrial Average recording its first all-time high since May.

The Dow rose 152.82 points, or 0.4%, ending at 34,786.35. The S&P 500 rose 32.4 points, or 0.8%, to 4,352.34, and the Nasdaq Composite rose 116.95 points, or 0.8%, to 14,639.33. The 10-year Treasury yield, which has been gradually declining, again weakened on Friday, falling 5 basis points to 1.42%.

Despite the equity market’s response, some strategists said the data was unlikely to significantly change the outlook for the Federal Reserve’s withdrawal of support from markets that it has been signaling recently.

US newspaper Barron’s over the weekend said Goldman Sachs wrote in a note after the jobs report was released that it expects the Fed to announce a reduction in bond purchases in December or possibly November, while TD Securities strategists said they expect an announcement at the Fed’s December meeting.

IMF forecasts US growth of 7% this year

The International Monetary Fund last week predicted US growth of 7% this year – much stronger than previously forecast and the fastest pace since 1984. It said the US has seen a remarkable recovery thanks to the unprecedented support from government spending and the Fed’s “highly effective’’ stimulus measures.

The IMF also noted that growth could turn out to be higher than its forecast but this would depend on approval being granted for the government’s spending plans.

June wasn’t a great month for Singapore stocks, but…

The Business Times reported that the market capitalization of some 678 stocks listed here amounted to S$859b, only a marginal improvement over May’s S$856.2b. It also quoted a CGS-CIMB report which said institutions were sellers over the month, with Reits and consumer cyclicals enjoying small inflows whilst outflows were particularly heavy in financials, telcos and industrials.

The 30 STI stocks in June had a market cap of S$524b, or about 61% of the entire market. Catalist’s market value was S$13b.

The first half was decent: SGX

The SGX’s educational portal My Gateway reported that although the STI declined 1.1% in 2Q21, this was the strongest first half of a year for the STI since 2017, with the STI generating an 11.9% total return in 1H21, compared to a 13.8% total return in 1H17.

“Together, DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank recipient to net institutional and net proprietary inflows of S$1.39 billion in 1Q21 and S$468 million in 2Q21. The trio averaged a 19.0% total return in 1H21, in-line with the median 19.8% total return for the 200 largest listed global banks by market value’’ reported My Gateway.

Property cooling measures – not yet, but still possible

The Monetary Authority of Singapore towards the end of last month signaled that the property market is not considered overheated yet so cooling measures are not needed yet, however it added that it remains “highly vigilant’’ and curbs at some stage remain a possibility.

These considerations arose after it was reported that the overall residential price index had risen 0.9% for Q2 versus Q1, this after Q1’s rise had been 3.3%.

For the half year, prices increased by 4.3% whilst were 7.3% higher thanQ2 2020 when the circuit-breaker period began last year.