Summary

• U.S. equity markets slumped Monday following their strongest weekly gains since February as investors monitored Omicron developments ahead of a busy week of economic data and a closely-watched Fed meeting.
• Pulling back from record-highs following gains of nearly 4% last week, the S&P 500 slipped 0.9% today while the Mid-Cap 400 declined 1.0% and the Small-Cap 600 retreated 1.6%.
• Led by the residential and technology REIT sectors, real estate equities leaders on the day as the Equity REIT Index gained 0.9% with 11-of-19 property sectors in positive territory.
• All eyes are on the Fed this week as Chair Powell is expected to announce a more aggressive stance towards combating inflation following last week's CPI report which showed the fastest annual rate of inflation in four decades.
• Renewed COVID concerns remain a potential wild-card for monetary policy, and the lingering threat of increased economic restrictions in Europe and Asia sparked a bid for the US Dollar, bonds, and domestic-focused equities.

Income Builder Daily Recap

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U.S. equity markets slumped Monday following their strongest weekly gains since February as investors monitored Omicron developments ahead of a busy week of economic data and a closely-watched Fed meeting on Wednesday. Pulling back from record-highs following gains of nearly 4% last week, the S&P 500 slipped 0.9% today while the Mid-Cap 400 declined 1.0% and the Small-Cap 600 retreated 1.6%. Led by the residential and technology REIT sectors, real estate equities leaders on the day as the Equity REIT Index gained 0.9% with 11-of-19 property sectors in positive territory while Mortgage REITs slipped 1.4%.

All eyes are on the Fed this week as Chair Powell and the FOMC are expected to announce a more aggressive stance towards combating inflation following last week's CPI report which showed the fastest annual rate of inflation in four decades. Renewed COVID concerns remain a potential wild-card for monetary policy, and the lingering threat of increased economic restrictions in Europe and Asia dragged the 10-Year Treasury Yield lower today. Four of the eleven GICS equity sectors finished higher today, led by the domestic-focused and yield-sensitive sectors including Real Estate (XLRE) and Utilities (XLU).

We have another busy week of economic and housing data in the week ahead, kicking off on Tuesday with the Producer Price Index for November, which is expected to show the highest annual rate of price increases on record at 9.2%. On Tuesday, we'll see Retail Sales data for November, which is expected to show a modest increase in spending as the holiday shopping season kicked off. Also on Tuesday, we'll see NAHB Homebuilder Sentiment data for December which is expected to stay steady with last month. On Thursday, we'll see Housing Starts and Building Permits data for November which is expected to show that construction activity accelerated last month, consistent with signs of housing industry acceleration over the past quarter.

Equity REIT & Homebuilder Daily Recap

Net Lease: As part of our latest net lease REIT report exclusive for Income Builder members published this afternoon, we developed additional metrics to measure the inflation-hedging characteristics of particular REITs and of real estate property sectors. Our new “Inflation Hedge Factor” metric uses a similar calculation as our Economic Sensitivity and Interest Rate Sensitivity metrics but utilizes an index of long-term inflation expectations as the benchmark. We also added the comparable metrics for Stocks (MDY) and Bonds (TLT) which provide context and illustrate how REITs are “part equity, part bond” with characteristics that blend features of both, underscoring their unique value in a balanced investment portfolio.

Apartment: After the close today, Independence Realty (IRT) announced that its stockholders approved a previously-announced merger with non-traded REIT Steadfast Apartment REIT under which Steadfast will merge with and into IRT, with IRT surviving as the continuing public company. Shareholders also approved the issuance of shares of IRT stock to the stockholders of Steadfast. The combined portfolio will own 131 multifamily apartment properties comprising approximately 38,000 units, primarily in the Sunbelt region. The Merger is expected to close by Thursday, December 16, 2021.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, residential mREITs declined 1.7% today while commercial mREITs slipped 1.8%. On an otherwise slow day of newsflow, ACRES Realty (ACR) and Cherry Hill Mortgage (CHMI) each slumped more than 6% while Great Ajax (AJX) and Broadmark Realty (BRMK) were the leaders. This afternoon, New York Mortgage Trust (NYMT) held its dividend steady at $0.10/quarter. The average residential mortgage REIT now pays a dividend yield of 9.42% while the average commercial mortgage REIT pays a dividend yield of 6.37%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were lower by 0.02% today and are now higher by 8.34% on a price return basis and roughly 15% on a total return basis. Over in the bond markets today, Iron Mountain (IRM) announced that it will launch a private placement offering of $500M in Senior Notes due 2032 and intends to use the net proceeds to fund the acquisition of ITRenew announced last week.

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Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

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. 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.