• U.S. equity markets and bond markets rallied Wednesday after Fed Chair Powell signaled a downshift in the aggressive pace of monetary tightening while employment data showed a continued hiring slowdown.
• Closing at its highest level in two months, the S&P 500 gained 3.1% today - notching back-to-back monthly gains for the first time since August and July 2021.
• Real estate equities were broadly-higher today as well with the Equity REIT Index advancing 2.3% with all 18 property sectors in positive territory while the Mortgage REIT Index gained 2.0%.
• Small-Cap mall REIT CBL Properties (CBL) rallied nearly 5% today after it declared a special dividend of $2.20 per share to meet its required minimum distribution rate of 90% of taxable income.
• ADP data showed that job growth in November was the weakest since January 2021. Notably, goods-producing sectors lost 86k jobs in November in the ADP survey. While mid-sized businesses (50-500 employees) continued to add jobs in November, both small and large businesses reported layoffs.

Income Builder Daily Recap

U.S. equity markets and bond markets rallied Wednesday after Fed Chair Powell signaled a downshift in the aggressive pace of monetary tightening while employment data showed a continued slowdown in hiring. Closing at its highest level in two months, the S&P 500 gained 3.1% today - notching back-to-back monthly gains for the first time since August and July 2021 - while the tech-heavy Nasdaq 100 rallied 4.5%. Real estate equities were broadly-higher today as well with the Equity REIT Index advancing 2.3% with all 18 property sectors in positive territory while the Mortgage REIT Index gained 2.0%. Homebuilders advanced 1.9%, continuing a recent rebound as data today showed that mortgage rates declined to the lowest level in two months.

In the final major prepared speech before the December FOMC meeting, Fed Chair Powell's comments were interpreted as less hawkish than anticipated, highlighted by prepared remarks that “the time for moderating the pace of rate increases may come as soon as the December meeting.” The 10-Year Treasury Yield retreated by 4 basis points to 3.70% - near the lowest levels in two months. Powell also made reference to “tentative signs” of “rebalancing” in the labor market which followed disappointing employment data today from ADP showing that job growth was the weakest since January 2021 in November. Notably, goods-producing sectors lost 86k jobs in November in the ADP survey, offset by 213k jobs added to the service sector. While mid-sized businesses (50-500 employees) continued to add jobs in November, both small businesses and large businesses reported layoffs.

Real Estate Daily Recap

Best & Worst Performance Today Across the REIT Sector

Mall: CBL Properties (CBL) rallied nearly 5% today after it declared a special dividend of $2.20 per share to meet its required minimum distribution rate of 90% of taxable income. Yesterday we published Mall REITs: The Bleeding Has Stopped. Mall REITs - which endured a dismal stretch of underperformance from 2015-2020 - enter the critical holiday season on surprisingly stable footing as resilient consumer spending has offset broader macro-headwinds. The momentum from the stimulus-fueled ‘spending spree’ appears likely to carry retailers through the holiday season. Store openings continue to outpace store closings in 2022 by the widest margin in decades. Following nearly three years of rental rate and occupancy declines, the supply-demand dynamic has recently favored retail landlords, rewarding mall REITs with some long-elusive pricing power.

Data Center: Equinix (EQIX) announced plans to build a new International Business Exchange in Malaysia with an initial investment of $40M, which is scheduled to begin operations in Q1 2024. Elsewhere, Digital Realty (DLR) tapped the debt market this week, pricing a public offering of $350M of 5.55% notes due 2028. This evening, we'll publish an updated report on the Data Center sector on the Income Builder Marketplace which will analyze recent earnings reports and provide our updated outlook for the sector. Notably, pricing power has strengthened in 2022 as robust demand has clashed with increasingly constrained supply levels.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were also broadly higher today with residential mREITs advancing 1.6% while commercial mREITs gained 1.8%. On another quiet day of newsflow in the mREIT space, upside leaders included Hannon Armstrong (HASI) and TPG Real Estate (TRTX) while ACRES Realty (ACR) and Arlington Asset (AAIC) were among the laggards.

Last week, we published Mortgage REITs: High Yields Are Fine, For Now. Mortgage REITs - which were left for dead amid a historically brutal year across fixed-income markets - have rebounded in recent weeks as earnings results were not as catastrophic as feared. Mortgage REITs are now outperforming Equity REITs for the year, and we continue to see value in a modest allocation towards higher-quality mREITs in a balanced income-focused real estate portfolio. Despite paying average dividend yields in the mid-teens, the majority of mREITs were able to cover their dividends as improved earnings power from wider investment spreads offset book value declines, but we flagged a handful of mREITs with payout ratios above 100% of EPS.

Economic Data This Week

Employment data and inflation data highlight another critical week of economic data in the week ahead headlined by JOLTS and ADP Payrolls data on Wednesday, Jobless Claims data on Thursday and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of roughly 200k in November - which would be the smallest gain since December 2020 - and for the unemployment rate to stay steady at 3.7%. 'Good news is bad news' will likely be the theme of these reports as investors and the Fed await the long-awaited cooldown in labor markets which has yet to fully materialize. On Thursday, we'll also see the PCE Price Index - the Fed's preferred gauge of inflation - which is expected to show similar trends of moderating price pressures as seen in the CPI and PPI reports in the prior week.

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