Fed Resolute • Yields Jump • Solid Payrolls Data

• U.S. equity markets declined Wednesday following their best two-day rally since 2020 as slightly better-than-expected employment and PMI data reversed the recent pull-back in long-term interest rates.
• Following consecutive gains of over 2.5% in the previous two sessions, the S&P 500 finished lower by 0.2% in a choppy session while the Mid-Cap 400 and Small-Cap 600 each declined 0.5%.
• Real estate equities were laggards today, pressured by the jump in long-term rates. The Equity REIT Index declined 2.1% today with all 18 property sectors in negative territory.
• Following downbeat JOLTS data on Tuesday, solid ADP employment data today showed a private payrolls gain of 208k in September as strong hiring in the transportation and logistics sectors offset job losses in the manufacturing, financial services, and energy sectors.
• Hawkish Fed commentary from SF Fed President Daly - who reiterated that the Fed is "resolute" in their policy path - and from Atlanta Fed President Bostic - who wants to raise rates by another 75 to 150 basis points by year-end - contributed to the upward pressure on yields.

Income Builder Daily Recap

U.S. equity markets declined Wednesday following their best two-day rally since 2020 as slightly better-than-expected employment and PMI data reversed the recent pull-back in long-term interest rates. Following consecutive gains of over 2.5% in the previous two sessions, the S&P 500 finished lower by 0.2% in a choppy session while the Mid-Cap 400 and Small-Cap 600 each declined by 0.5%. Real estate equities were laggards today, pressured by the jump in long-term rates. The Equity REIT Index declined 2.1% today with all 18 property sectors in negative territory while the Mortgage REIT Index dipped 4.6%. Homebuilders also lagged as mortgage applications dipped to the slowest pace since 1997.

Continuing the 'good news is bad news' theme, a slightly better-than-expected ADP employment report and decent ISM Services PMI data threw some cold water on the notion of an imminent Fed pivot. Hawkish Fed commentary from SF Fed President Daly - who reiterated that the Fed is "resolute" in their policy path - and from Atlanta Fed President Bostic - who wants to raise rates by another 75 to 150 basis points by year-end - also contributed to the upward pressure on yields. After a sharp pull-back earlier in the week, the 10-Year Treasury Yield jumped 14 basis points to 3.76%. The U.S. Dollar Index rebounded following five-straight down days while Crude Oil rallied for a third-straight day after OPEC confirmed its plans to cut oil production. Eight of the eleven GICS equity sectors finished lower today with the yield-sensitive Utilities (XLU) and Real Estate (XLRE) sectors dragging on the downside.

Following downbeat JOLTS data on Tuesday which showed one of the largest one-month dips in job openings on record, employment data today from ADP was relatively solid - showing a private payrolls gain of 208k in September as strong hiring in the transportation and logistics sectors offset job losses in the manufacturing, financial services, and energy sectors. Economists had expected ADP payrolls at 200k. Elsewhere, Services PMI data from the Institute for Supply Management ("ISM") remained in expansion-territory in September - also slightly better than anticipated. In September, the Services PMI registered 56.7 percent, a 0.2-percentage point decrease compared to the August reading of 56.9 but above estimates of 56.0. Notably, its index for prices paid by businesses - which has increased for 64 straight months - fell to the lowest-levels since early 2021.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Hotels: Today we published Hotel REITs: Winter Is Coming. Hotel REITs have held up surprisingly well throughout the recent market turmoil and remain one of the top-performing property sectors this year following a solid summer of operating performance. Several years of pent-up leisure demand from COVID delays helped to offset a slow business travel recovery, but we remain skeptical over the sustainability of the recovery in the upscale urban markets given the complexion of the RevPAR recovery - driven by pent-up leisure travel and surging room rates rather than an underlying occupancy recovery. Within the sector today, Services Property (SVC) was among the better performers after announcing that it refinanced its credit facility to remove the current restrictions on paying dividends.

Manufactured Housing: Yesterday, Sun Communities (SUI) provided a preliminary assessment of the impact of Hurricane Ian on the company’s properties in Florida noting that three RV properties in the Fort Myers area, comprising approximately 2,500 sites, "sustained significant flooding and wind damage" from the hurricane and one marina property suffered damage to the sea wall and docks. It noted that at its other affected RV and MH properties, "most of the damage appears to be limited to trees, roofs, fences, skirting, and carports" while at its marina "sustained limited wind and water damage." While it did not comment on the expected financial impact, it reiterated that it maintains property, casualty, flood, and business interruption insurance for its portfolio of communities. Earlier in the week, Equity LifeStyle (ELS) provided an update noting that it does not believe that damages will significantly impact its operations or financial condition.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, the volatile daily swings continued today for mortgage REITs, which finished sharply lower today following a broad-based rally on Tuesday. Among the laggards today was Hannon Armstrong (HASI), which dipped following a Financial Times interview with short-selling firm Muddy Waters, which has been critical of the firm's accounting practices and business model. Several of the double-digit gainers yesterday were also among the laggards today including Chimera (CIM) and AG Mortgage (MITT). Also among the laggards today, ARMOUR Residential (ARR) dipped nearly 5% despite holding its monthly dividend steady at $0.10/share.

Economic Data This WeekEmployment data highlights another critical week of economic data in the week ahead headlined by JOLTS data on Tuesday, ADP Payrolls on Wednesday, Jobless Claims data on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of roughly 250k in September - which would be the smallest gain since December 2020 - and for the unemployment rate to stay steady at 3.70%. 'Good news is bad news' will likely be the theme of these reports as investors and the Fed look for signs of the long-awaited cooldown in job growth which has yet to materialize. Purchasing Managers' Index ("PMI") data will continue to be a major market focus - particularly in Europe and Asia - as recent reports have dipped below the breakeven 50-level.

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