Alex Pettee, CFA
Real Estate Extends Gains Amid Turbulence
On another wild week for financial markets amid a flurry of volatility, US stocks couldn’t quite claw back all of their early-week declines, ending lower for the third straight week.
Record-low bond yields around the globe, including new historic lows on the US 30-year Treasury yield, helped to power the real estate sector to another week of outperformance.
Lower mortgage rates have revitalized the US single-family housing market, which saw starts jump to the highest level since January. Homebuilder sentiment and mortgage demand data was also solid.
Strong retail sales data eased investor concern over the health of the US consumer, but industrial and manufacturing production data continues to show weakening demand for goods from abroad.
Core inflation has unexpectedly perked up a bit this summer, primarily led by rising housing costs. The rise in CPI: Shelter is near the highest level in a decade.
The domestic-focused and rate-sensitive equity sectors, particularly real estate and utilities, extended their 2019 outperformance this week as the 10-year yield continued its free fall. The broad-based REIT ETFs (VNQ and IYR) finished slightly higher on the week, pushing their outperformance relative to the S&P 500 to nearly 6% over the past four weeks and pushed their total return on the year to roughly 25%. The gains would be even higher absent the continued weak performance from the mall REIT sector, which dove another 4% on the week following soft earnings from department store giant Macy's (M) despite otherwise solid retail sales data. The residential and technology-focused real estate sectors led the gains last week.
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