Stocks surge to record high with Fed rate cut: Weekly Recap

This week marked a major event in global financial markets.

The US Federal Reserve finally lowered its benchmark interest rate after raising it to the highest level since 2007 to curb inflation.

Like many of you, I began exploring how this Fed rate cut might impact our investments. 

To begin with, the era of earning high interest just by parking cash in fixed deposits or T-bills might be coming to an end. In fact, the cut-off yield for the 6-month Singapore T-bill in the upcoming auction on 26 September may dip below 3.1%.

However, this shift could open up other opportunities for higher potential returns. Singapore REITs, for example, are often considered one of the asset classes that stand to gain from interest rate cuts. 

More recently, CapitaLand Integrated Commercial Trust (CICT), the largest Singapore REIT, made headlines with its acquisition of ION Orchard, marking one of the biggest REIT deals in years. We dive into what CICT unitholders should consider regarding the preferential offering announced to fund this acquisition.

Personally, I’ll be exploring new places to park my cash as my T-bills mature. However, one thing I’m holding off on is rushing into property purchases, despite the drop in mortgage rates.

How will your investment strategy shift with the Fed interest rate cut? We’d love to hear your thoughts! And if there’s something specific you’d like us to cover, let us know—we want to write about what matters most to you.

Happy growing!

Gerald, Founder of Beansprout

⏰ This Week In Markets

🚀 Record highs after Fed rate cut  

What happened? 

The US Federal Reserve cut its benchmark interest rate by 0.5% (50 basis points) in its first rate cut in four years. 

Fed officials project that the benchmark rate will be lowered by another 0.5% in 2024 and 1.0% in 2025, bringing the benchmark interest rate to a range of 3.25% to 3.5% by the end of 2025. 

Despite the big rate cut, Fed officials raised their projection for the long term benchmark rate to 2.9% from 2.8%.

What does this mean?

The rate cut would be be in line with market expectations, as investors have raised their hopes of a sharp rate cut in recent weeks.

This follows “greater confidence” that the US Fed has gained about inflation, as the headline inflation has moderated to 2.5% in August 2024.

With the rate cut, the Fed is looking to support the US labour market in addition to bringing inflation back to is goal.

Why should I care? 

The S&P 500 surged to a record high following the big rate cut as investors expect the easing of interest rate to bring the US economy to a ‘soft landing’.

The price of gold also reached a record high of above US$2,600 per ounce. 

With the strength in the US market, the Straits Times Index (STI) reached its highest level since 2007. 

However, REITs had a mixed performance as US government bond yields bounced slightly following the rate cut. Read our REIT weekly review to find out which REITs fared the best. 

Learn more about how the Fed rate cut will impact your investments. 

🚗  Moving This Week

• SIA August passenger volume grew 7.7% year-on-year. Load factor fell 2.5%-point over Aug 2023, but stays elevated at 85.7%. Cargo volume growth of 20.9% outpaced capacity increase, led by e-commerce and demand spillover from sea freight.
• Sembcorp Industries is acquiring a 30% stake in Senoko Energy, to be funded by internal cash and external borrowings. Senoko supplies about 20% of Singapore’s electricity needs.
• OCBC is investing S$500m in developing a new innovation hub in the Punggol Digital District for completion in 1Q27 to house its technology teams.
• ST Engineering opened a new yard at Gul Road to replace its existing Tuas Yard. The new yard is twice the size of its existing capacity.
• CapitaLand Ascott Trust will be fully compensated for the losses it suffered for an alleged white-collar crime in Australia. This follows press reports in The Edge that a senior executive of CapitaLand in Australia purported faked tax, insurance and legal documents, as well as misappropriated funds. 

Source: Bloomberg, CNBC, Business Times, Edge Singapore

💡 The big important story

CICT Preferential Offering - What should unitholders do?

The CapitaLand Integrated Commercial Trust (CICT) preferential offering will offer entitled unitholders the right to buy 56 new units at S$2.007 each for every 1,000 units held.

🤓 What we're looking out for next week

• Monday, 23 Sep: Singapore inflation data
• Tuesday, 24 Sep: CapitaLand Integrated Commercial Trust (CICT) preferential offering closing date
• Wednesday, 25 Sep: Singapore Savings Bond (SSB) application closing date
• Thursday, 26 Sep: Singapore 6-month T-bill auction
• Friday, 27 Sep: US Personal Consumption Expenditure (PCE) data

Check out the full list of Singapore stocks, REITs and ETFs with upcoming dividend payments with our dividend calendar.

Source: SGX, Bloomberg, Refinitiv

Join the Beansprout Telegram group and Facebook group for the latest insights on Singapore stocks, REITs, bonds and ETFs.