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  • Alex Pettee, CFA

Dip Buying • Omicron Concerns • Week Ahead

Summary

  • U.S. equity markets rebounded Monday following their largest one-day decline since February as emerging details about the Omicron Covid-19 variant suggest the effects may be less severe than initially feared.

  • Bouncing back from declines of 2.1% last week, the S&P 500 rallied 1.3% today while the Mid-Cap 400 gained 0.2% and the Small-Cap 600 slipped 0.2%. The tech-heavy Nasdaq-100 rallied 2.3%.

  • Led once again by the "essential' property sectors - housing, technology, and logistics - real estate equities were mostly-higher today with the Equity REIT Index gaining 1.1%.

  • Following a strong slate of housing data over the prior two weeks, Pending Home Sales jumped 7.5% in October, well above the consensus estimates, with every region reporting an increase in pending sales.

  • Employment data highlights the economic calendar in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday.

Income Builder Daily Recap

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U.S. equity markets rebounded Monday following their largest one-day decline since February as emerging details about the Omicron Covid-19 variant suggest the effects may be less severe than initially feared. Bouncing back from declines of 2.1% last week, the S&P 500 rallied 1.3% today while the Mid-Cap 400 gained 0.2% and the Small-Cap 600 slipped 0.2%. The tech-heavy Nasdaq 100 gained 2.3%. Led once again by the "essential' property sectors - housing, technology, and logistics - real estate equities were mostly-higher today with the Equity REIT Index gaining 1.1% with 13-of-19 property sectors in positive territory while Mortgage REITs slipped 0.1%.

As discussed in our Weekly Outlook, the gains today follow a volatile Thanksgiving week - particularly in the commodity markets - as concerns over an emerging COVID variant triggered a fresh wave of economic restrictions and travel restrictions across Europe and Asia. All eleven GICS equity sectors were higher on the day, led to the upside by the Technology (XLK) and Consumer Discretionary (XLY) sectors. The 10-Year Treasury Yield climbed back above 1.50% after plunging by 16 basis points last Friday.

Following a better-than-expected slate of New and Existing Home sales data last week, the positive momentum continued as the NAR reported that Pending Home Sales jumped 7.5% in October, well above the consensus estimate for a 0.7% increase. Every region reported an increase in pending sales, led by a 12% gain in the Midwest. Following the breakneck surge in housing market activity in early 2021 and subsequent summer cooldown, recent data indicate that conditions have settled into a more sustainable positive trajectory. Supply remains historically low and prices elevated, but demand has returned as soaring rents have pushed some households back into the ownership markets.

Employment data highlights the economic calendar in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 563K in November following last month's better-than-expected employment growth of 531K and for the unemployment rate to tick lower to 4.5%. In addition to Pending Home Sales data this morning, we'll also see a flurry of housing data as well with Case Shiller Home Price Index data on Tuesday and Construction Spending data on Wednesday.

Equity REIT Daily Recap

Shopping Center: Today, we published Shopping Center REITs: Bargain Hunting exclusive for Income Builder subscribers. Bouncing back from punishing pandemic-related declines, Shopping Center REITs are on the cusp of a full recovery across all critical metrics - but Omicron introduces fresh uncertainty - and also potential opportunity. The retail landscape has improved dramatically this year. Retail sales are on-pace to rise over 15% this year while store closings are on-pace for the lowest level in a decade. In the exclusive report, we discussed our new position and other trends we're watching.

Last week, we published State of the REIT Nation, which discussed how premium valuations have revived the "animal spirits" and sparked a much-needed wave of M&A and IPO activity which has facilitated accretive external growth. With six completed IPOs and four more on the way, 2021 will go down as the most active year for REIT IPOs since 2013. At the same time, several mega-sized non-traded REITs have scooped up public REITs. REITs have acquired nearly $50B in net assets over the past year - the largest expansion in the asset base since 2015. External growth may be just getting started as REIT balance sheets - and access to capital - have never been stronger.

Mortgage REIT Daily Recap

Per the REIT Rankings Tracker available to Income Builder subscribers, commercial mREITs finished fractional higher today while residential mREITs slipped 0.2%. NexPoint Real Estate (NREF) and Brightspire Capital (NYSE:BRSP) were leaders on an otherwise quiet day of newsflow while Broadmark Realty (BRMK) was a laggard. The average residential mortgage REIT now pays a dividend yield of 9.39% while the average commercial mortgage REIT pays a dividend yield of 6.41%.

REIT Preferreds & Capital Raising

Per the REIT Preferred Tracker available to Income Builder subscribers, REIT Preferreds were higher by 0.14% today to push their YTD gains to 9.09% on a price-return basis and roughly 15% on a total return basis.


Income Builder Trending Reports

Below we highlight several of the most-read reports over the last 24 hours published by the Income Builder contributor team.

We're excited to announce the launch of our new investment research service here on Seeking Alpha - Hoya Capital Income Builder. We've put together a great team of contributors from across the REIT, dividend, and ETF industry, so whether your focus is High Yield or Dividend Growth, we’ve got you covered with high-quality, actionable investment research and a comprehensive suite of tools and models to help build sustainable portfolio income targeting premium dividend yields of up to 10%. And of course, subscribers receive complete access to our investment research - including reports that are never published elsewhere - from Hoya Capital and our team of contributors.

Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

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