China Lockdowns • HASI Targeted • CPI Ahead
U.S. equity markets finished lower Tuesday in a relatively muted session, contrasting with a sharp decline in commodities prices amid mounting concerns over economic contractions in Europe and Asia.
Ahead of the critical CPI inflation report on Wednesday morning, the S&P 500 retreated 0.9% today but the more domestically-oriented Mid-Cap 400 and Small-Cap 600 finished essentially flat.
Real estate equities were again among the stronger performers today as global benchmark interest rates continued to retreat. The Equity REIT Index finished lower by 0.4% today.
A fresh wave of COVID lockdowns in China added to the growing concern over a "hard landing" across major economies in Europe and Asia. Commodities were under sharp pressure today with Crude Oil prices dipping 7% to below $100 per barrel.
Mortgage REIT Hannon Armstrong (HASI) plunged nearly 20% today after short-selling firm Muddy Waters released a new short report titled: HASI: “ESG” is for Exaggerating, Scamming, and Grifting. HASI responded, noting the report is "replete with factual errors and numerous inflammatory and misleading statements."
Income Builder Daily Recap
U.S. equity markets finished lower Tuesday in a relatively muted session, contrasting with a sharp decline in commodities prices amid mounting concerns over economic contractions in Europe and Asia. Declining for a second-straight session ahead of the critical CPI inflation report on Wednesday morning, the S&P 500 retreated 0.9% today but the more domestically-oriented Mid-Cap 400 and Small-Cap 600 finished essentially flat on the session. Real estate equities were again among the stronger performers today as global benchmark interest rates continued to retreat. The Equity REIT Index finished lower by 0.4% today with 8 of 18 REIT sectors in positive territory while the Mortgage REIT Index slipped 0.8%.
A fresh wave of COVID lockdowns in China added to the growing concern over a "hard landing" across major economies in Europe and Asia. China reportedly placed about 30 million people under strict lockdown rules after the country of 1.4 billion people reported 352 new COVID-19 cases on Sunday. Commodities were under sharp pressure today with Crude Oil prices dipping 7% to below $100 per barrel - the lowest close since April - while metals and agriculture commodities also posted sharp declines. The 10-Year Treasury Yield remained below the 3.0% level - down 3 basis points on the day to 2.96% - well below its recent high of 3.50% reached in early June. Lower rates and expectations of U.S. economic outperformance lifted homebuilders and the broader Hoya Capital Housing Index to modest gains today while all other major GICS equity sectors were lower on the day.
Real Estate Daily Recap
Best & Worst Performance Today Across the REIT Sector
Infrastructure: Mortgage REIT Hannon Armstrong (HASI) plunged nearly 20% today after short-selling firm Muddy Waters released a new short report titled: HASI: “ESG” is for Exaggerating, Scamming, and Grifting. Muddy Waters - which has been reportedly been under scrutiny by regulators for illegal trading activity - alleges that HASI is engaged in misleading accounting practices related to the valuation of their renewable energy portfolio. HASI makes loans to renewable energy companies and other "green" energy projects that are typically secured by real estate rights. HASI - which has been one of the strongest-performing mortgage REITs over most long-term measurement periods with average annualized total returns that are nearly triple that of the Vanguard Real Estate ETF (VNQ) in the past five years.
Storage: Today, we published Storage REITs: Sell-Off Is Case of 'Mistaken Identity on the Income Builder marketplace. Self-Storage REITs - usually known for their recession-resistant characteristics - have sold off in recent months despite a stellar slate of earnings results and upbeat interim updates. Storage REITs appear to be caught up in the bearish sentiment surrounding industrial REITs– a rather distant “cousin” to the storage sector– and the unusually-high recent correlations are fundamentally unwarranted. Few REIT sectors have defied expectations as comprehensively as storage REITs since the start of the pandemic, and while several pandemic-fueled tailwinds are waning, the long-term outlook remains quite compelling. We discussed our updated outlook and recent allocations in the report linked here.
Mortgage REIT Daily Recap
Per the REIT Rankings Tracker available to Income Builder subscribers, mortgage REITs were mixed today with residential mREITs advancing 0.6% while commercial mREITs slipped 0.8%. As noted above, Hannon Armstrong (HASI) was the worst-performing on the day and is now the second-worst-performing mREIT for the year. Ready Capital (RC) was unchanged today after providing a business update this morning, reporting that it originated an $1.2 billion in commercial real estate and small business loans in Q2 despite the marketing conditions that are "growing more challenging for mortgage REITs." Elsewhere, AGNC Investment (AGNC) advanced 0.7% today after it held its monthly dividend steady at $0.12/share, representing a forward yield of 12.7%. The average residential mREIT now pays a dividend yield of roughly 13.3% while the average commercial mREIT pays a dividend yield of 9.2%.
REIT Preferreds & Capital Raising
Per the Income Builder Preferred Tracker available to Income Builder subscribers, REIT Preferred stocks finished higher by 1.21% 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 6.97%.
Inflation data highlight another busy week of economic data in the week ahead. On Wednesday, the BLS will report the Consumer Price Index. The Core CPI is expected to moderate for the third straight month to a 5.7% annual rate, but persistent energy and food price inflation is expected to keep the headline rate to the highest since December 1981. The following day we'll see the Producer Price Index for June which is expected to exhibit similar trends of peaking price pressures. On Friday, we'll also see Retail Sales for June and get our first look at Michigan Consumer Sentiment for July. Last month, sentiment fell to the lowest level in more than 10 years as persistent inflation and worries over economic growth have weighed on confidence.
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