• Alex Pettee, CFA

Post-Election Rally | Lower-For-Longer | REITs Boost Dividends

  • U.S. equity markets surged Wednesday as Election Results pointed towards a divided government and the prospects of political stability regardless of the winner of the still-undecided Presidential race.

  • Pushing its weekly gains to over 5%, the S&P 500 jumped another 2.2% today and the Dow Jones Industrial Average gained 367 points while the tech-heavy Nasdaq 100 surged 4.5%.

  • REITs lagged today - particularly the COVID-sensitive sectors - as the Equity REIT ETF (VNQ) finished higher by 0.1% today with 11 of the 18 property sectors finishing in negative territory.

  • We view the "divided government" outcome as an especially ideal environment for residential and commercial real estate equities and other yield-sensitive sectors that tend to outperform during economic regimes of low-interest rates, low inflation, and modest economic growth.

  • Economic data was mixed with disappointing ADP data offset by strong housing market data as mortgage applications activity showed robust housing demand. We have another busy afternoon of REIT earnings with more than a dozen reports.

Real Estate Daily Recap

U.S. equity markets surged Wednesday as Election Results pointed towards a divided government and the prospects of political stability regardless of the winner of the still-undecided Presidential race. Pushing its weekly gains to over 5%, the S&P 500 ETF (SPY) jumped another 2.2% today and the Dow Jones Industrial Average (DIA) gained 367 points while the tech-heavy Nasdaq 100 (QQQ) surged 4.5%. Real estate equities lagged today, particularly the COVID-sensitive sectors as the broad-based Equity REIT ETF (VNQ) finished higher by 0.1% today with 7 of the 18 property sectors finishing in positive territory while the Mortgage REIT ETF (REM) finished lower by 0.8%.

We view the "divided government" outcome - particularly one with a fiscally conservative Senate - as an especially ideal environment for commercial real estate equities and other yield-sensitive sectors that tend to outperform during economic regimes of low-interest rates, low inflation, and modest economic growth. The 10-Year Treasury Yield (IEF) dipped by 11 basis points today, reflecting a lower likelihood of a significant near-term fiscal stimulus package and reduced long-term inflation expectations. After lagging earlier in the week, the Technology (XLK) and Communications (XLC) sectors outperformed today while the domestic-focused sectors including the Materials (XLB) and Industrials (XLI) sectors lagged. A surge from the single-family homebuilders helped to lift the Hoya Capital Housing Index to another day of gains.


On the economic data front, economic data this morning was mixed. ADP data showed that the pace of job growth slowed in April as the private-sector added 365k jobs, shy of estimates of around 600k. The U.S. housing market continues to outperform, however, as the Mortgage Bankers Association reported that mortgage applications to purchase a single-family home remained strong last week and are now higher by 25% from last year while refinancing applications are now higher by 88% from last year. The 30-Year Fixed Mortgage Rate with conforming loan balances stands at 3.01%, just barely above last week's all-time series low, and we believe that projected election outcomes bode well for a continuation of the "lower-for-longer" economic regime that should be a sustained tailwind for the housing sector.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

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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