Upside-Down Week As REITs Stumble And Yields Surge



  • Signs of cooling trade tensions between the US and China sent US equity markets to their third straight weekly gain, edging closer to new all-time record highs.
  • The 10-Year yield surged 35 basis points this week, the largest one-week jump since 2013. Yield-sensitive sectors including REITs, which have led this year’s rally, took a step back.
  • Housing stocks set a series of new record highs throughout the week, jumping another 2%, led by the Home Furnishings, Mortgage Banking, and Real Estate Technology sectors.
  • While lower oil and food prices continue to put downward pressure on the headline inflation data, core inflation has perked up over the last three months.
  • Retail sales came in stronger-than-expected, but largely due to strength in the e-commerce sector. Brick & Mortar retailers continue to struggle with store closings and slowing sales growth.
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Real Estate Weekly Outlook

In what some observers described as an “upside-down” week in the financial markets, US equities climbed for the third straight week as trade tensions between the US and China appeared to cool ahead of the all-important in-person trade discussions in early October. Another week of solid economic data and a show of strength from the Republican party in a closely-watched set of special elections (especially of interest to the Chinese trade delegation) lifted investor optimism and sent the 10-year yield surging to the biggest weekly gain in six years.

Sector and factor rotation have been key themes over the past several weeks with a sharp reversal in leadership groups. In a sharp move that confounded many investors, the high-flying momentum and high-growth factors have significantly underperformed in recent weeks while the beaten-down value and quality factors have suddenly caught a bid, a theme that we’ve observed play out within the REIT sector as well.

real estate outlook

The S&P 500 (SPY) and Dow Jones Industrial Average (DIA) each climbed another 1% this week, pushing the major large-cap benchmarks back to within 1% of all-time record highs. The small-cap Russell 2000 (IWM), which has underperformed for most of this year, surged nearly 5% on the week while on the flip-side of the coin, the high-flying REIT sector took a step back as the broad-based REIT ETFs (VNQ and IYR) dipped more than 2%.

The “upside-down” week was apparent within the REIT sector as the high-flying cell tower sector plunged more than 7% while the struggling mall and hotel sectors saw sizable jumps. Despite mixed retail sales data and the reports of an impending bankruptcy from one of the seemingly better-performing mall-based retailers, Forever 21, the low-productivity mall REITs including CBL & Associates (CBL) and Washington Prime (WPG

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Hoya Capital Real Estate ("Hoya Capital") is a registered investment advisory firm based in Rowayton, Connecticut that provides investment advisory services to ETFs, individuals, and institutions. Hoya Capital Research & Index Innovations is an affiliate that provides non-advisory services including research and index administration focused on publicly traded securities in the real estate industry.

This published commentary is for informational and educational purposes only. Nothing on this site nor any commentary published by Hoya Capital is intended to be investment, tax, or legal advice or an offer to buy or sell securities. This commentary is impersonal and should not be considered a recommendation that any particular security, portfolio of securities, or investment strategy is suitable for any specific individual, nor should it be viewed as a solicitation or offer for any advisory service offered by Hoya Capital. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.

The views and opinions in all published commentary are as of the date of publication and are subject to change without notice. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Any market data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that any outlook made in this commentary will be realized.

Readers should understand that investing involves risk and loss of principal is possible. Investments in real estate companies and/or housing industry companies involve unique risks, as do investments in ETFs. The information presented does not reflect the performance of any fund or other account managed or serviced by Hoya Capital. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes.

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Disclosure: I am/we are long VNQ, ACC, TCO, AMZN, HCP, WELL, HOME, PLD, RF, RH, RLGY, SNBR, WELL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. All commentary published by Hoya Capital Real Estate is available free of charge and is for informational purposes only and is not intended as investment advice. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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