Monthly wrap for October 2022: STI down 1.2% for the month, all eyes on this week’s FOMC

Date: November 1, 2022

  • The STI fell below 3,000 but regained it in the final week
  • The STI’s loss for the month was 37 points or 1.2% at 3,093.11
  • The late bounce, mainly courtesy of the banks, was thanks to a firm Wall St
  • Singapore’s market cap was 6.1% lower at S$791b
  • Corporate earnings and lower bond yields helped boost US stocks
  • US Treasury yield curve remained inverted
  • All eyes on this week’s FOMC meeting

The STI first lost 3,100, then 3,000 but regained 3,000 last week

From a technical perspective, perhaps the most significant events of October were that the Straits Times Index first fell below 3,100 on 12 Oct, then 3,000 on 21 Oct, before regaining the 3,000 mark on 26 Oct.

The late bounce came courtesy of a firmer Wall Street, as well as on expectations that the banks would post sterling Q3 results because rising interest rates should result in record profits. So far, UOB on Friday lived up to these expectations when it reported a 34% year-on-year surge in Q3 net profit to S$1.4b, thanks mainly to higher net interest income and surpassing the consensus estimate of S$1.19b.

On Monday, a large, 33.92 points bounce, possibly aided by month-end window-dressing or portfolio rebalancing, ensured that the STI fell just 37 points or 1.2% over the month to 3,093.11. Monday’s volume was also the highest for the month at S$1.68b.

However, it is worth noting that Monday’s bounce was initially 67 points and was also not that broad-based – the market ended the day with 292 rises versus 247 falls.

S-Reits and banks were in focus

Real estate investment trusts, which have had a torrid few months because of worries that rising interest rates will have on their bottom lines, managed to rebound in the last week of October, with the FTSE ST Reits Index gaining 3.4%. This was led by Manulife US Reit, Keppel DC Reit, Aims Apac Reit and CDL Hospitality Trusts.

For the month however, the FTSE ST Reits Index posted a 5.5% decline in total returns for the month. Geoff Howie, market strategist at the Singapore Exchange (SGX), pointed out ahead of Monday’s session that the market recorded net fund outflows of about S$100m, largely from the Reits sector.

The three banks were also in focus, finishing the month strongly. UOB jumped $0.70 or 2.6% to S$27.76, DBD gained S$0.42 or 1.24% at S$34.20 and OCBC rose S$0.14 or 1.2% to S$12.13.

Market cap down 6.1% for Oct

The market value of the 644 counters traded on the Singapore Exchange fell 6.1% last month to S$791b, the second consecutive month of decline. The market cap of the 30 STI stocks in the meantime, was 2.4% lower at S$513.3b.

The biggest gainers were the three banks – UOB’s market value rose by S$2.7b to S$46.8b, DBS by S$2.09b to S$88.3b and OCBC by S$1.35b to S$54.8b.

The top fall in market cap was recorded by Prudential, with a S$14.87b loss, followed by Nio, which lost S$14.7b. Three Jardine firms, Jardine Matheson, Hongkong Land and Jardine Cycle & Carriage were among the top 10 decliners.

The mainboard’s market cap fell 6.2% to S$782b, whilst that of Catalist fell 1.8% to S$9.1b.

SGX: 30 most traded non-STI stocks saw about S$670m in net outflows

In its latest Market Update, SGX said Singapore’s 30 most traded stocks outside of the STI have seen about S$670 million in net fund outflows in the 2022 YTD, with declines in October, bringing their average 2022 YTD decline in total return of the stocks to 5%. The most represented sectors among the 30 stocks are REITs, technology, consumer non-cyclicals and the energy sectors.

“The five of the 30 stocks that saw the highest net fund inflows proportionate to market value in in the 2022 year to 28 Oct included Riverstone, Semb Marine, Sheng Siong, Golden Energy & Res, and CapitaLand Ascott Trust. Total returns of the five stocks over the 43 weeks varied from -10% for Riverstone to +202% for Golden Energy & Res.

The most defensive of 30 stocks for October ahead of the final session for the month, included Semb Marine, Golden Energy & Res, CapLand India Trust, Geo Energy Res, First Res, RH Petrogas, Golden Agri-Res and iFAST, with the eight gainers averaging 8% total returns for the month, while technology and technology-adjacent stocks led the declines’’.

US bond yields fell while stocks rose on hopes of a dovish Fed

All these movements were dictated by how Wall Street performed overnight as well as how the US futures market moved during Asian trading hours. This in turn was to a large extent dictated by rises and falls in the US Treasury bond market where short-term yields backed off from their multi-year highs last week, on hopes that the US Federal Reserve will shift to a more accommodative stance after this week’s Federal Open Markets Committee meeting.

As it tries to get inflation under control, the Fed has boosted short-term rates five times in 2022, most recently in September by 75 basis points, or 0.75 percentage point—the third consecutive increase of that magnitude. The futures market on Friday afternoon was putting the chances of a 75-basis-points increase at 82% to the 3.75-4% range.

But the futures market also has been pointing to lower future hikes, with a 50-basis-point hike in December now a stronger bet than another 75-basis-point move.

US Treasury yield curve is still inverted

The yield on the 10-year U.S. Treasury Note closed at 4% on Monday down from its 52-week high of 4.24% on Oct. 24. The two-year yield ended at 4.42% whilst the 30-year yield ended at 4.13%. An inverted yield curve is usually taken to signal an impending economic slowdown or recession.

“The yield curve is making it pretty clear that the long-term growth story is bleak,” says Adam Coons, a portfolio manager at Winthrop Capital Management.

The recent drop in yields on the 10-year Treasury, he said, illustrated that “the economic data was showing that this slowdown is real and that anyone pretending we are not really headed for a recession, or even in one, was just doing that—pretending.”

On Friday, the US October jobs report will be released. Expectations are that the economy added a strong 200,000 jobs and the rate of unemployment is expected to rise from 3.5 to 3.6%.

Corporate earnings also helped push US stocks higher

Wall St’s movements, however, were not wholly determined by rises and falls in bond yields – earnings too, played a role, especially last week when stocks ended the week with some momentum after economic data on the inflation front came in steady on Friday.

The core personal consumption expenditures price index, considered a preferred inflation gauge by the Federal Reserve, increased 0.5% from the previous month and 5.1% from a year ago. While those marks are still considered high, they met the expectations of economists.

Apple was also a general catalyst for the market with a 7.6% jump on well-received earnings. Despite a bruising day for Amazon following the e-commerce giant’s guidance shocker, the Dow Jones Industrial Average ended 2.6% higher on for the session, the S&P 500 Index tacked on a 2.5% gain, and the Nasdaq Composite ended up about 2.9%.

The weekly marks were good as well for the major indexes, with the Dow up 5.7%, the S&P 500 3.9% higher, and the Nasdaq showing a 2.2% gain.

For the month, the Dow was up 14%, its best month since January 1976.

Earlier in the week, Amazon said it expects to post fourth-quarter revenue between US$140 billion and US$148 billion, representing year-over-year growth of 2% to 8%. Analysts were expecting sales to come in at US$155.15 billion.