Midterms Ahead • REIT Earnings • Inflation Week

• U.S. equity markets rebounded Monday while interest rates pushed towards two-decade highs ahead of a busy week of market-moving events including Election Day on Tuesday and CPI inflation data on Thursday.
• Bouncing back from declines of more than 3% last week, the S&P 500 rebounded by 1.0% today while the tech-heavy Nasdaq 100 advanced 1.1%.
• Real estate equities were mixed ahead of the final stretch of earnings season with reports from the final two-dozen REITs this week. Equity REITs were flat while Mortgage REITs gained 1.3%.
• Bond markets remained under pressure today despite an increasingly bleak outlook for global economic growth outlook with China doubling down on its "Covid-Zero" policy while Facebook joined a growing list of tech companies to announce layoffs or hiring freezes over the past week.
• Small-cap City Office REIT (CIO) dipped 4% after reporting mixed results - reiterating its full-year FFO outlook calling for impressive FFO growth of 14.3%, but providing a cautious outlook for 2023. Major REIT report this week include Welltower, Spirit Realty, and Healthcare Realty.

Income Builder Daily Recap

U.S. equity markets rebounded Monday while interest rates pushed towards fresh two-decade highs ahead of a busy week of market-moving events including Election Day on Tuesday and CPI inflation on Thursday. Bouncing back from declines of more than 3% last week, the S&P 500 rebounded by 1.0% today while the tech-heavy Nasdaq 100 advanced 1.1%. Real estate equities were mixed today ahead of the final stretch of earnings season with reports from the final two dozen REITs this week. The Equity REIT Index finished flat today with 7-of-18 property sectors in positive territory while the Mortgage REIT Index advanced 1.3% and Homebuilders rebounded 2.8%.

Bond markets remained under pressure today despite an increasingly bleak outlook for global economic growth outlook with China doubling down on its "Covid-Zero" policy while Facebook parent Meta Platforms (META) joined a growing list of technology companies to announce layoffs or hiring freezes over the past week. The 10-Year Treasury Yield advanced 6 basis points to close at 4.21% today - just below its previous two-decade closing high of 4.25% set in late October but the US Dollar remained under pressure since hitting its own two-decade highs in September. Nine of the eleven GICS equity sectors finished higher today with Energy (XLE) and Communications (XLC) stocks leading ono the upside while Utilities (XLU) stocks lagged.

Inflation data highlights this week's economic calendar with the Consumer Price Index report on Thursday which investors - and the Fed - are hoping to show that the fastest pace of year-over-year increases is finally behind us. The headline CPI is expected to moderate to an 8.0% year-over-year rate while the Core CPI is expected to decelerate slightly to 6.5%. Consumer gas prices were, on average, 3% higher in October compared to the prior month and 15.9% above the prior month. The other major market-moving event of the week comes on Tuesday with Election Day in the United States. Market pricing currently implies a roughly 75% probability that Republicans take control of the House and Senate, a state of "divided government" that would likely remove the potential for major fiscal spending over the next two years. On Friday, we'll get our first look at Michigan Consumer Sentiment for September. The Fed is particularly interested in the 5-Year Inflation Expectations survey, looking for signs of a potential "wage-price inflation spiral" through elevated consumer wage expectations.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

REIT earnings season will wrap-up in the week ahead with reports from two dozen REITs with a few "big names" still left to report including Apple Hospitality (APLE), Welltower (WELL), and Sabra Health Care (SBRA) this afternoon, Spirit Realty (SRC), UMH Properties (UMH), and National Health Investors (NHI) on Tuesday, Healthcare Realty (HR) and Tricon Residential (TCN) on Wednesday, and NewLake Capital (OTCQX:NLCP) and Sotherly Hotels (SOHO) on Thursday. As always, we'll provide real-time commentary throughout earnings season for Income Builder members.

Office: Small-cap City Office REIT (CIO) dipped 4% after reporting mixed results - reiterating its full-year FFO outlook calling for impressive FFO growth of 14.3%, but providing a cautious outlook for 2023, noting "general pressure on leasing metrics across the industry" and "elevated levels of subleasing and downsizing" that has put downward pressure on effective rents. Last week we published Office REITs: Work from Home Reckoning? Pressured by the painfully slow “return to the office” with daily utilization rates still 50% below pre-pandemic norms, Office REITs are the among worst-performing property sectors this year even as leasing activity and REIT earnings results have been surprisingly resilient. With labor markets still historically tight, employees are still dictating the terms of the "Work from Home" dynamic, especially in coastal markets with long commutes where WFH benefits outweigh costs.

Apartments: This afternoon, we'll publish an updated report on the Apartment REIT sector on the Income Builder Marketplace. Pressured by the broader housing cooldown, Apartment REITs have been among the weaker-performing property sectors over the past quarter despite achieving record-setting rent growth throughout the summer. While the era of 20% rent increases on new leases is over, there remains significant “embedded” rent growth in below-market renewals that should power another year of impressive growth in 2023. The importance of regional selectivity is again becoming a key factor, and we’re seeing a return to the “Sunbelt outperformance” theme with all four Sunbelt-focused REITs raising their outlook this earnings season. We'll discuss our updated outlook and newly-initiated apartment REIT position in the report this afternoon.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs finished mostly-higher today ahead of the final stretch of earnings season. We'll hear results from the final dozen mREITs in the week ahead including Two Harbors (TWO) and Broadmark (BRMK) on Tuesday and Starwood Property (STWD) on Wednesday. As expected, Book Value declines have been more significant for pure-play agency-focused residential mREITs but conditions are far less grim than feared several weeks ago with the majority of commercial mREITs recording BVPS increases in Q3.

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