Daily Recap: Tariff Trouble | Stocks Sag | Manufacturing Contracts

Dec. 02, 2019 4:59 PM ETAGNC, CIM, GM, IEF, NLY, NZR, QQQ, SPY, TWO, VNQ, XLI, XLK, XLP, XLRE, XLV, XLY
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Summary

  • Coming off record highs set last week, US equity markets stumbled out of the gate this week on disappointing manufacturing and construction data, and lingering concerns over hard-line trade policy.
  • The S&P 500 ETF (SPY) declined by 0.8% on the day while the Nasdaq ETF (QQQ) fell by 1.1%. The 10-Year Treasury Yield climbed by 6 basis points to 1.84%.
  • Yield-senstive equity sectors generally underperformed as a result, with the broad-based Real Estate ETF (VNQ) declining by 1.5% on the day with all fifteen REIT sectors in negative territory.
  • Contrasting with better-than-expected PMI data last week, the ISM Manufacturing Index disappointed this morning, registering 48.1 in November, marking the fourth straight month below the expansion level of 50.
  • Residential spending was the bright-spot in another otherwise lackluster Construction Spending report. Residential spending was positive on a year-over-year basis for the first time since August 2018.

Real Estate Daily Recap

Our Real Estate Daily Recap discusses the notable news and events in the real estate sector over the last trading day and highlights sector-by-sector performance. We publish this note every afternoon at HoyaCapital.com and, by reader demand, occasionally on Seeking Alpha to cover significant news or outsized daily performance. Check out our website and join our mailing list to make sure you never miss the latest developments in the commercial and residential real estate sectors.

Coming off record highs set last week, US equity markets stumbled out of the gate this week on disappointing manufacturing and construction data, as well as lingering concerns over hard-line trade policies. The S&P 500 ETF (SPY) declined by 0.8% on the day while the Nasdaq ETF (QQQ) fell by 1.1%. Despite weak domestic economic data, reports of record Black Friday sales and decent data out of China and the Eurozone helped to push the 10-Year Treasury Yield (IEF) up by 6 basis points to close the day at 1.84%. Yield-senstive equity sectors generally underperformed as a result, with the broad-based Real Estate ETF (VNQ) declining by 1.5% on the day with all fifteen REIT sectors in negative territory.

real estate etf

Following a strong week of housing data, the Hoya Capital Housing Index, the benchmark that tracks the performance of the US housing industry, finished the day lower by 1.2%. All eight housing industry sectors were lower on the day, but residential mortgage REITs including New Residential (NZR), Two Harbors (TWO), Chimera (CIM), AGNC Investment (AGNC), and  Annaly (NLY) were among today's top performers, along with real estate technology firm Zillow (Z). 

homebuilding etf

Among equity sector ETFs, the Consumer Staples (XLP), Energy (XLY), and Healthcare (XLV) sectors led the way on the day while the Commercial Real Estate (XLRE), Industrials (XLI), and Technology (XLK) sectors were today's laggards. REITs are now higher by roughly 23% YTD on a price-return  basis in 2019 compared to the 25% gains on the S&P 500. real estate investing

This week, we'll publish our Net Lease REIT sector report, which was published to the iREIT on Alpha Marketplace today. Net Lease REITs may be expensive, but perhaps that's a good thing. Utilizing "cheap" equity capital, Net Lease REITs have reasserted themselves as the external growth engines of the REIT sector. While yield-focused investors tend to view the sector less favorably when valuations are extended (and dividends lower), we believe that the total return potential of the sector is higher when the sector is trading with elevated equity valuations, as these REITs are able to grow AFFO and dividends via accretive external acquisitions.

net lease REITs returns

Economic Data This Week

As discussed in our Real Estate Weekly Outlook, it'll be another busy week of economic data with a full slate of employment data including ADP nonfarm data on Wednesday and the headline BLS nonfarm Payrolls data on Friday. Economists are projecting 180k jobs added in November following last month's better-than-expected report that showed 128k jobs added despite the drag from the GM (NYSE:GM) auto workers strike. Average hourly earnings are projected to rise by 3.0%, continuing a mild slowdown since wage growth - and inflation data - peaked in 2018. 

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