Strong Week For REITs As Jobs Data Keeps Fed In Play

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• On the Independence Day-shortened week, the major US equity indexes delivered another week of strong gains, climbing to new end-of-week record highs. REITs recovered after their worst week of 2019.
• With all eyes on the Fed, jobs data was generally better than forecast. BLS payrolls beat estimates but ADP employment data fell short, keeping the Fed on-course for a July rate cut.
• Dragged down by a slowdown in the goods-producing and retail sectors, the pace of job growth has slowed in 2019 to 170k per mouth from nearly 225k in 2018.
• Benefiting the yield-sensitive sectors, data over the past month substantiates the “Goldilocks” economic environment of low inflation, low interest rates, and slow-but-steady growth, ideal conditions for REITs and homebuilders.
• Construction spending came in weaker than expected in May, but lower interest rates and moderating construction costs provide a favorable backdrop for residential construction activity in the second half.

Coming off their worst week of 2019, the broad-based REIT ETFs (VNQ and IYR) rallied more than 2.5% led by the defensively-oriented manufactured housing and student housing sectors. After dipping as low as 1.94% intra-week following weak economic data early in the week, the 10-year yield (IEF) bounced off the lowest levels since 2016, jumping 10 basis points on Friday following the jobs report to close the week roughly unchanged at 2.05%, but the yield-sensitive REIT sector held its ground despite the bond sell-off. Benefiting the yield-sensitive sectors, data over the past month substantiates the “Goldilocks” economic environment of low inflation, low interest rates, and slow-but-steady growth, ideal conditions for REITs and homebuilders.

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