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  • Alex Pettee, CFA

Stocks Slammed • Prisons Get Squeezed • REIT Earnings

Summary

  • U.S. equity markets finished sharply lower Wednesday amid a flurry of earnings reports and Federal Reserve commentary while the ongoing "short squeeze phenomenon" raised questions regarding market stability.

  • Posting its worst day since October, the S&P 500 finished lower by 2.6% today and the Dow Jones Industrial Average dipped 634 points. Small-Caps were a standout on the upside.

  • Real estate equities were relative outperformers as the Equity REIT ETFs finished lower by 1.8% today with 16-of-19 property sectors in negative territory. Prison REITs surged amid a potential short-squeeze.

  • Prison REITs were the target of the short-squeeze traders today as CoreCivic (CXW) and GEO Group (GEO) surged more than 16% today despite reports earlier this week that President Biden plans to take executive action to scale back the federal government's use of private prisons.

  • Office REIT Boston Properties (BXP) dipped today after writing-off accrued rents for all tenants in the troubled co-working sector. Office REITs continue to be under pressure as the “work from home” paradigm threatens the long-term outlook.

Real Estate Daily Recap

U.S. equity markets finished sharply lower Wednesday amid a flurry of earnings reports and Federal Reserve commentary while the ongoing "short squeeze phenomenon" raised questions regarding market stability. Posting its worst day since October, the S&P 500 ETF (SPY) finished lower by 2.6% today and the Dow Jones Industrial Average (DIA) dipped 634 points. The S&P Small-Cap 600 (SLY) was a standout on the upside. Real estate equities were relative outperformers today as the Equity REIT ETFs (VNQ) finished lower by 1.8% today with 16 of 19 property sectors in negative territory while the Mortgage REIT ETFs (REM) declined by 2.6%.

Increased coronavirus restrictions in Europe and concerns over the pace of the vaccine roll-out pressured equity markets heading into the session. Volatility ramped-up throughout the day as the incredible surge in many heavily-shorted stocks including GameStop (GME) continued and spread to other segments of the equity market including the REIT sector, which we'll discuss in more detail below. All eleven GICS equity sectors were lower on the day, dragged down by the Communications (XLC), Consumer Discretionary (XLY), and Healthcare (XLV) sectors. Homebuilders and the broader Hoya Capital Housing Index were relative outperformers following strong mortgage market data and ahead of earnings from Meritage Home (MTH) this afternoon.

Prison REITs were the target of the short-squeeze traders today as CoreCivic (CXW) and GEO Group (GEO) surged more than 16% today despite reports earlier this week that President Biden plans to take executive action to scale back the federal government's use of private prisons. Per data from ShortSqueeze.com, the fifteen most heavily-shorted equity REITs listed below have delivered YTD gains averaging 38% compared to the 1% gain on the broader REIT index. Macerich (MAC), Tanger Outlets (SKT), and Seritage Growth (SRG) are the three most heavily-shorted REITs.

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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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