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  • Alex Pettee, CFA

Short Surrender • REITs Rally • Earnings Update

Summary

  • U.S. equity markets rebounded Monday following sharp declines last week ahead of a busy week of corporate earnings and economic data while the "short squeeze saga" continues to add intrigue.

  • Coming off the worst week for the major indexes since October, the S&P 500 finished higher by 1.61% today while the Dow Jones Industrial Average rebounded 229 points.

  • Real estate equities - which were a source of stability last week - continued their outperformance today as earnings season heats-up. Equity REIT rallied 2.3% today with 18-of-19 property sectors higher.

  • Mall REIT Macerich (MAC) plunged more than 10% today after reporting preliminary 4Q results. Consistent with our commentary last week, earnings reports have indeed served a "dose of reality" for the high-flying short squeezed REITs. FFO per share plunged by 39% from last year.

  • The "REIT Squeeze Index" has come back down to earth over the last several trading sessions, diving about 10% from its peak last Thursday including the sharp declines today from Tanger Outlets (SKT), Washington Prime (WPG), and the aforementioned Macerich (MAC).

Real Estate Daily Recap

U.S. equity markets rebounded Monday following sharp declines last week ahead of a busy week of corporate earnings and economic data while the "short squeeze saga" continues to add intrigue. Coming off the worst week for the major indexes since October, the S&P 500 ETF (SPY) finished higher by 1.7% today while the Dow Jones Industrial Average (DIA) rebounded 229 points and the tech-heavy Nasdaq 100 (QQQ) surged 2.5%. Real estate equities, which were a source of stability last week, continued their outperformance today as earnings season heats-up. The broad-based Equity REIT ETFs (VNQ) rallied 2.3% today with 18 of 19 property sectors in positive territory while the Mortgage REIT ETFs (REM) gained 1.8%.

As discussed in our Real Estate Weekly Outlook, last week's "short squeeze frenzy" appeared to overshadow a generally strong week of earnings reports and economic data, not to mention coronavirus data showing a sharp plunge in case counts and hospitalizations over the last two weeks. All eleven GICS equity sectors finished higher on the day, led by the Technology (XLK), Consumer Discretionary (XLY), and Commerical Real Estate (XLRE) sectors. Homebuilders and the broader Hoya Capital Housing Index also bounced back today ahead of another busy week of housing-related earnings.

Employment data highlights this week's busy economic calendar, 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 50k in January, bouncing back from the 140K job losses in December while the unemployment rate is expected to remain steady at 6.7%. We'll also see Construction Spending data on Monday, the weekly MBA Mortgage Application data on Wednesday, and a flurry of Purchasing Managers' Index (PMI) data throughout the week.

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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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