Fed Speak • Amazon Layoffs • Mall Earnings

• U.S. equity markets declined Monday following their best weekly gains since June as investors parsed comments from Fed officials ahead of a busy week of housing, inflation, and retail data.
• Pulling back following gains of nearly 6% last week, the S&P 500 declined 0.9% today while the tech-heavy Nasdaq 100 also fell 0.9%.
• Real estate equities were among the laggards today after leading the gains in the prior week. Equity REITs finished lower by 2.3% today while Mortgage REITs slipped 1.8%.
• Consumer-focused stocks were among the laggards today on reports that Amazon (AMZN) plans to fire 10,000 workers, the largest layoff in the company's history.
• Small-cap CBL Properties (CBL) - which emerged from a brief bankruptcy last November - was among the better performers today after reporting decent third-quarter results highlighted by improving occupancy rates and leasing spreads.

Income Builder Daily Recap

U.S. equity markets declined Monday following their best weekly gains since June as investors parsed comments from Fed officials ahead of a busy week of housing, inflation, and retail data. Pulling back following gains of nearly 6% last week, the S&P 500 declined 0.9% today while the tech-heavy Nasdaq 100 also fell 0.9%. The Mid-Cap 400 and Small-Cap 600 were also off by about 1%. Real estate equities were among the laggards today after leading the gains in the prior week. The Equity REIT Index finished lower by 2.3% today while the Mortgage REIT Index declined by 1.8%. Homebuilders dipped more than 3% following their best week since April 2020.

Comments from Fed Vice Chair Brainard resulted in a choppy session across bond markets, who noted that it would “soon” be appropriate to slow the pace of rate hikes, but also emphasized that there was "additional work to do" to bring down inflation. Rebounding from a sharp decline last week in the wake of a cooler-than-expected CPI inflation report, the 10-Year Treasury Yield advanced 5 basis points to close at 3.87% while the US Dollar rebounded from one of its worst weeks on record. Bitcoin, meanwhile, continued its dip amid the continuing fallout from the implosion of FTX, one of the largest crypto exchanges. Consumer-focused stocks were among the laggards today on reports that Amazon (AMZN) plans to fire 10,000 workers, the largest layoff in the company's history, which follows a wave of announced layoffs this month from major tech companies.

As corporate earnings season and election season winds down, we'll see another busy slate of economic data in the week ahead with the U.S. housing market in focus - the industry that is bearing the brunt of the aggressive tightening path through the historic surge in mortgage rates - and perhaps also the sector with the most to gain from a "Fed pivot." On Wednesday, we'll see NAHB Homebuilder Sentiment data for September which is expected to decline to the lowest level since 2014 - excluding the brief pandemic dip in April and May 2020. On Thursday, we'll see Housing Starts and Building Permits data which is expected to show a further pull-back in home construction activity to levels below that of late 2019 before the pandemic boom. On Friday, Existing Home Sales data is also expected to dip to the lowest levels since 2014 excluding the pandemic shutdown months. We'll also be watching Producer Price Index data on Tuesday and Retail Sales data on Wednesday along with Jobless Claims data on Thursday.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Last Friday we published our REIT Earnings Recap: Rents Paid, Dividends Raised. Nearly 200 REITs and a dozen homebuilders have reported third-quarter earnings results over the past three weeks, providing critical information on the state of the U.S. real estate industry. REIT earnings season was surprisingly strong across nearly all property sectors. Of the REITs that provide guidance, nearly two-thirds raised their full-year FFO outlook alongside another two dozen dividend hikes. During third quarter earnings season, the Equity REIT Index outperformed the broader S&P 500 by nearly 10 percentage points while Mortgage REITs outperformed by over 15 percentage points. Earnings results from Shopping Center, Industrial, and Net Lease REITs were most impressive - accounting for exactly half of the 58 guidance hikes. Residential and technology REIT results were more hit-and-miss - accounting for half of the 14 downward guidance revisions. Read the full report here.

Mall: Small-cap CBL Properties (CBL) - which emerged from a brief bankruptcy last November - was among the better performers today after reporting decent third-quarter results highlighted by improving occupancy rates and leasing spreads. CBL recorded spreads on new and renewal leases of +5.2% driven primarily by a jump in new lease rates, which offset a 2.3% decline in renewal rates. As noted in our Real Estate Earnings Recap, results from mall REITs have shown that downward pressure on rents and occupancy rates may finally be subsidizing. Earlier in earnings season, Simon Property (SPG) hiked its full-year guidance along with its quarterly dividend driven by an uptick in occupancy rates and a stabilization in rents. Tanger Outlets (SKT) also reported better-than-expected results and raised its full-year outlook, driven by its strongest quarter for rental rate spreads in a half-decade at 5.7% - its third straight quarter of positive spreads following a streak of eight straight quarters of negative growth.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs slipped today following robust gains in the prior week as a generally better-than-expected earnings season winds down. As noted in our REIT Earnings Recap, results showed that the damage to mREIT balance sheets was not nearly as catastrophic as many feared in Q3 during a historically brutal quarter for fixed-income securities. Arlington Asset (AAIC) rounds out mREIT earnings season this afternoon.

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