China Contraction • REIT Earnings • Week Ahead

• On the heels of their best month since November 2020, U.S. equity markets finished modestly lower Monday as investors weighed hawkish Fed commentary against data showing a continued economic cooldown.
• Following gains of 4.3% last week - its first back-to-back weekly gains since March - the S&P 500 slipped 0.3% today but the more domestic-focused Small-Cap 600 advanced 0.2%.
• Real estate equities were mostly lower today ahead of their busiest week of earnings season. Following a two-week stretch of notable outperformance, the Equity REIT Index declined 0.8% today.
• PMI data over the weekend showed an unexpected contraction in Chinese factory activity. Stateside, S&P Global's PMI metric slipped to a two-year low in July while its measure for prices paid plunged 18.5 points to the lowest level in almost two years.
• Employment data highlights another busy week of economic data and corporate earnings reports in the week ahead, headlined by JOLTS data on Tuesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

Real Estate Daily Recap

On the heels of their best month since November 2020, U.S. equity markets finished modestly lower Monday as investors weighed hawkish Fed commentary against data showing a continued cooldown in global growth ahead of a critical week of employment data. Following gains of 4.3% last week - its first back-to-back weekly gains since March - the S&P 500 slipped 0.3% today but the more domestic-focused Small-Cap 600 advanced 0.2% and the Mid-Cap 400 finished fractionally lower. Real estate equities were mostly lower today ahead of their busiest week of earnings season with reports from over 100 REITs. Following a two-week stretch of notable outperformance, the Equity REIT Index declined 0.8% today with 15-of-18 property sectors in negative territory but the Mortgage REIT Index gained 0.5%.

Comments from Fed officials pushing back on the idea of a necessary "pivot" in monetary policy were again shrugged-off by markets after another slate of economic data showing notable contractions in economic activity across several major economies. PMI data over the weekend showed an unexpected contraction in Chinese factory activity while South Korea's factory activity declined for the first time in almost two years. Stateside, S&P Global's PMI metric slipped to a two-year low in July while its measure for prices paid - a proxy for inflationary pressures - plunged 18.5 points to the lowest level in almost two years. The 10 Year Treasury Yield dipped to the lowest level since April, retreating by another 4 basis points to close at 2.61%. Seven of the eleven GICS equity sectors were lower on the day with the Energy (XLE) sector dragging on the downside as demand concerns dragged Crude Oil prices to nearly six-month lows.

Employment data highlights another busy week of economic data and corporate earnings reports in the week ahead, headlined by JOLTS data on Tuesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of roughly 250k in July which would be the lowest month-over-month increase since the start of the pandemic as the U.S. has now recovered 95% of the 22 million jobs lost from the COVID-related economic shutdowns. The unemployment rate, meanwhile, is expected to stay steady at 3.6%. Purchasing Managers' Index ("PMI") data will continue to be a major market focus - particularly in Europe and Asia - as recent reports have barely managed to hold on to the breakeven 50-level.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Today we published our Real Estate Earnings Halftime Report. At the halfway point of earnings season, 30 REITs (70%) have raised their full-year FFO outlook while just 4 REITs (9%) have lowered or withdrawn their outlook. Strong results from REITs come amid an otherwise disappointing earnings season for the broader equity market as just 45% of S&P 500 companies boosted their outlook while 55% have lowered. REITs perform their best in a relatively "slow and steady" economic regime. A "soft landing" of moderating interest rates and slowing - but not sharply negative - economic growth would be an ideal macro environment. Upside standouts this earnings season have been Apartment, Shopping Center, and Industrial REITs. Currency headwinds have been a theme in the technology space, but core results have surprised on the upside. Office REITs have been the lone source of negative revisions.

The back-half of earnings season is generally more volatile as we'll see nearly the full slate of retail and hotel REIT reports and results from most of the remaining small-cap REITs. We'll hear results this afternoon from mall REIT Simon Property (SPG); shopping center REITs Brixmor (BRX) and InvenTrust (IVT); net lease REITs EPR Properties (EPR) and Gladstone Commercial (GOOD), apartment REIT Centerspace (CSR); cell tower REIT SBA Communications (SBAC); healthcare REIT Omega Healthcare (OHI), and office REITs Vornado (VNO), Douglas Emmett (DEI), and Equity Commonwealth (EQC). We'll continue to provide real-time coverage for Hoya Capital Income Builder members and will publish follow-up articles summarizing our thoughts and analysis throughout earnings season.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs continued their recent outperformance with residential mREITs advancing 0.8% while commercial mREITs finished fractionally higher. Through the first week of earnings season, residential mREITs have reported an average decline in their BVPS of about 11% amid a historically brutal quarter for fixed income securities while commercial mREITs have reported an average BVPS decline of 0.3%. The earnings calendar heats up in the week ahead with results from two dozen mREITs including New Residential (NRZ) on Tuesday, New York Mortgage (NYMT) on Wednesday, and Starwood Capital (STWD) on Thursday.

REIT Preferreds & Capital Raising

Per the Income Builder Preferred Tracker available to Income Builder subscribers, REIT Preferred stocks finished higher by 1.05% today, on average. REIT Preferreds are lower by roughly 10% on a total return basis this year after ending 2021 with price returns of roughly 8.0% and total returns of roughly 14%. There are now roughly 180 REIT-issued exchange-listed preferred and debt securities with an average current yield of 6.89%.

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