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Are we seeing light at the end of the tunnel?

Are we seeing light at the end of the tunnel?

Signs of easing death tolls in key areas including Italy, Spain, France, Germany and New York catalysed a strong rally in Wall Street overnight, sending three major indices over 7% higher.

Technology (+8.78%), Utilities (+7.85%), Consumer Discretionary (+7.73%) and materials (+7.60%) were among the best performing groups. Falling crude oil prices were a drag to the energy sector (+5.15%), which is the second worst performing sector among the S&P 500 index.

The sustainability of this rebound will depend on the development of the Covid-19 situation in other parts of the US, and in the long term, how things will evolve in India, South Africa, Latin America– the developing world. It is perhaps too early to say we are safe now.

Technically, the S&P 500 index has likely broken out above a key resistance level at 2,646 (38.2% Fibonacci Retracement) and will aim for the next resistance at 2,790 points (50%).

In Singapore, the impact of implementing a ‘circuit breaker’ for 1 month has likely been priced-in last Friday when the Prime Minister announced the plan. The market has since rebounded over 5% this week, boosted by both a ‘sell on expectation, buy on fact’ mentality as well as the third-round of fiscal stimulus budget called the ‘Solidarity Budget’. This Budget is supplementary to the second Budget and aims to stabilize the jobs market and waive rental burdens for this one-month period for corporates. 

Singapore REITs have likely passed over their ‘darkest moment’ last Friday, and embraced a decent rebound this week. From peak to trough, S-REITs have fallen nearly 40% this year and their values are emerging. REITs with prime location properties, low leverage and high credit rating profiles are likely to outperform their other peers. Healthcare REITs are more resilient against Covid-19 headwinds, however, Retail and Commercial REITs have perhaps more future upsides as they had been most badly sold recently.

WTI Crude oil prices retraced back to a key support level of US$ 25.9 overnight and since rebounded to US$ 26.8. A broad ‘risk on’ sentiment is providing some cushion to oil’s downside as demand outlook is lifted by easing death tolls from Covid-19 in West Europe and New York. Saudi Arabia, Russia and the US Shale oil negotiation on the output cut deal will ultimately set oil’s direction in the weeks to come.  

US SPX 500 - Cash