Goldilocks Job Report Revives Real Estate by Brad Thomas

8 months ago
4 Min Read
760 Words

Summary

  • After snapping a six-week winning streak on flaring geopolitical tensions, U.S. equity markets picked up where they left off in 2019 with broad advances and new record highs this week.
  • The S&P 500 gained 1.0% on the week while the tech-heavy Nasdaq climbed 2.0%. The 10-Year Treasury Yield ended the week higher by 4 basis points to close at 1.83%.
  • The BLS employment report showed that job growth was slightly weaker than expected in December while wage gains cooled to the slowest rate of growth since July 2018.
  • The "Goldilocks" jobs report was good news for real estate and other yield-sensitive equity sectors. REITs delivered a strong rally after the report to close the week in positive territory.
  • Homebuilders were the standout this week, surging nearly 3% on strong earnings reports from entry-level-focused homebuilders Lennar and KB Home, powered by low mortgage rates and strong demographic-driven demand.
  • This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »

Real Estate Weekly Outlook

U.S. equity markets picked up where they left off in 2019 with broad advances and new record highs after snapping a six-week winning streak last week on news of the U.S. airstrike that killed a top Iranian military official in Baghdad. Tensions appeared to be at a fever-pitch on Wednesday night after Iran's counterstrike on a US base in Iraq, before easing again as U.S. and Iran indicated that de-escalation was the preferred path forward from the hostilities over the past week. Geopolitics took a back-seat by Friday morning as investors keyed-in on the BLS nonfarm payrolls report, which was a "Goldilocks" report by nearly all measures, breathing renewed life into yield-sensitive equity sectors including real estate and utilities.

(Hoya Capital, Co-Produced with Brad Thomas through iREIT on Alpha)

The major averages all climbed to new intraday all-time highs this week as the Dow Jones Industrial Average briefly topped 29,000 for the first time ever on Friday morning. The S&P 500 ETF (SPY) gained 1.0% on the week, while a strong week from the technology sector powered the tech-heavy Nasdaq ETF (QQQ) to 2.0% weekly gains. After dipping as low as 1.71% in a broad flight to safety on Wednesday morning after the Iranian airstrike, the 10-Year Treasury Yield (IEF) ended the week higher by 4 basis points to close at 1.83%. The broad-based commercial Real Estate ETF (VNQ) rallied following Friday's jobs report to close the week in the green, gaining 0.1% on the week, led by the data center, storage, and cell tower REIT sectors.

For the Hoya Capital Housing Index, homebuilders were the standout this week, surging nearly 3% on strong earnings reports from entry-level-focused homebuilders Lennar (LEN) and KB Home (KBH), which reported order growth of 23% and 38%, respectively. As discussed in our recent report on the homebuilding sector, the combination of low interest rates and strong demographic-driven demand have supported a strong reacceleration in home sales following the "mini-housing-recession" of 2018. As we've noted, we see the "multiplier" effects of accelerating new and existing home sales to be a tailwind for other housing-related sectors in 2020, exemplified this week by strong performance from homebuilding products companies Trex (TREX) and Beacon Roofing (BECN) as well as real estate data provider CoreLogic (CLGX).

...Originally Posted On Seeking Alpha

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