REITs, Commodities, and Stocks News (3 Articles from Barron’s and MarketWatch)
~ Wednesday, November 15, 2023 Blog Post ~
REITs Soar. Higher Interest Rates Could Be on Hold. (From Barron’s)
By Shaina Mishkin, November 14, 2023
Real estate investment trusts, or REITs, were among the biggest winners in the stock market rally on Tuesday following a cooler-than-expected inflation report.
A slate of REITs — from life sciences to office space — notched their largest one-day gains this year, according to Dow Jones Market Data.
Tuesday’s Consumer Price Index reading for October alleviated fears about how high interest rates could go — worries that weighed on commercial real estate this year. Investors took the gauge to mean that the Federal Reserve was finished raising rates.
Among Tuesday’s big winners: Vornado Realty Trust (Ticker: VNO), rose 15.4%, Alexandria Real Estate Equities (ARE), gained 11.7%, and Boston Properties (BXP), up 10.7%. The S&P 500 index was up 1.9% on Tuesday.
Vornado is up 10.8% so far this year, while Alexandria and Boston Properties are off 27.7% and 16.1%, respectively.
The Vanguard Real Estate exchange-traded fund (VNQ), a broad fund with varied REITs and real estate-related holdings, jumped 5.5%. The fund is down 6.3% this year.
Tuesday’s REITs performance is “a big relief rally in terms of where rates might settle and where property values might settle,” Cedrik Lachance, Green Street’s director of research, told Barron’s.
Higher rates have driven down commercial real estate shares as investors anticipated falling property values and refinancing difficulties. Tuesday’s rally shows that investors are rethinking those expectations, says Lachance.
Life-sciences REITs were also helped by a deal announced on Tuesday. Boston Properties said it had sold a 45% stake in two of its Boston life sciences properties to Norges Bank Investment Management for $1.66 billion. “The pricing on it is without a doubt perceived as better than expected,” Lachance said.
Investors in home builder stocks also saw big gains on Tuesday, most likely due to the drop in the 10-year Treasury yield following the report. Mortgage rates often move with the 10-year yield.
Plus, home buyers likely found something to like in the inflation report, too. Mortgage rates tracked by Mortgage News Daily fell 0.18 percentage point to 7.40% on Tuesday. The website had pegged rates above 8% as recently as last month.
Source:
https://www.barrons.com/articles/reits-soar-higher-interest-rates-could-be-on-hold-4cc2df06
Article #2: This asset, not stocks or bonds, will be your best bet for 2024, says JP Morgan (From MarketWatch)
By Barbara Kollmeyer, November 14, 2023
Avoid stocks and bonds, and put money in commodities.
That’s the latest advice from JPMorgan’s chief market strategist Marko Kolanovic, who has put himself firmly in the “Year Without a Santa Claus” camp as he repeats his recent warning that the recent equity rally is out of steam.
While others may be holding on to hopes that often traditional end-year gains for stocks are coming, Kolanovic explains why that’s unlikely in a note to clients on Tuesday.
A “significant part” of the stock rally over the past two weeks was down to momentum strategies — betting on recent market winners to keep winning and short covering — investors forced to buy stocks to cover a wrong-way bet that markets were going down, said the strategist.
His pessimism is based largely on higher-for-longer interest rates, rich equity valuations, and a consumer who will be forced to stop spending as interest rates climb for car and other loans, lending standards tighten, and delinquencies start to rise. The resulting demand destruction will make it tougher for corporate earnings growth next year.
Enter commodities: “Meanwhile, the sharp decline in oil prices over the past month is making us more positive on energy both as a geopolitical hedge and given lighter positioning,” said the strategist.
Kolanovic said they’ve taken profits on their long-duration exposure to government bonds owing to a rally, rising supplies and investor positioning.
“We use the cut in bond allocation to fund an increase in our commodity allocation given still high geopolitical risk, and the significant selloff and weaker positioning in energy, and we incrementally shift our within-commodity allocation into energy.”
Of course, betting on energy is a tough one. On a continuous contract basis, U.S. crude prices CL.1, 0.26% are down 2.% so far this year, after a gain of just 6.7% in 2022.
Some oil bulls firmly believe there is a limited supply of crude, of which the world still needs plenty to keep turning, and given the lack of investment in infrastructure in recent years, greener options are seen as insufficient to make up any shortfall by some.
The commodity has also failed to get much of a hedge-related boost in the latter part of this year amid the conflict in the Middle East between Israel and Gaza, and Russia’s invasion of Ukraine more than two years ago, neither of which has driven prices persistently much higher.
In a note to clients on Tuesday, Citigroup analysts led by Anthony Yuen argued that oil prices will keep dropping from a September spike as “supply should be larger than demand in 2024.” They see Brent crude BRN00, 0.33%, currently at $82.33 per barrel, averaging $73/bbl by the second quarter of next year.
That said, they caution that potential weather events, such as polar vortexes and “combustible geopolitical developments” could push prices much higher, or lower this winter.
One stock bet left?
Note, there are some stocks that appear to squeeze past Kolanovic’s sniff test, as he sees defensives names starting to perk up, notably utilities and staples in the U.S. (Exchange traded fund options here are Vanguard Utilities ETF VPU and Consumer Staples Select Sector XLP ).
Those gains could continue if bond yields are indeed about to peak out, with the relative performance of cyclicals to defensives often strongly correlated to yield direction, he said.
“Even if bond yields ramp up further, the trade might be on as a break in yields above 5% will, in our view, be taken negatively by investors,” he said. And in an overall falling market, defensives might be the least worst place to be parked when it comes to stocks, he explains.
In favor of those stocks, Kolanovic said global purchasing managers index surveys are at risk of contracting further, extending five straight months of weakening. As well, cyclicals earnings are elevated against defensives and “showing signs of a turn,” and cyclicals also had the most profit warnings in the recent earnings period, with utilities the least, he said.
JPMorgan’s mostly bearish view on stocks all year meant clients may have sat out a first-half stock market rally. Kolanovic’s warning of a punishing selloff in June was vindicated by early August, though.
Like JPMorgan, most of Wall Street’s big forecasters have been too hot or too cold with their S&P 500 predictions for 2023 — Kolanovic’s team forecast the index to finish at 4,200 by the end of the year.
They may still have time to get this one right.
Source:
Article #3: The Magnificent Seven add more than $200 billion to their market caps (From MarketWatch)
By Tomi Kilgore, November 14, 2023
The combined market cap of the Magnificent Seven increased to $11.7 trillion, as tame inflation data fueled a broader market rally
It was a magnificent day for the stock market Tuesday, highlighted by a strong performance by the Magnificent Seven technology giants, led by Tesla Inc. and Apple Inc. shares.
The S&P 500 index SPX powered up 1.9%, with 466 components gaining ground, while the tech-friendly Nasdaq-100 Index NDX bulled 2.1% higher with 94 components rising. Investors cheered tame inflation data, which fueled hopes that interest rates may have peaked.
The total market capitalization of the Magnificent Seven companies was $11.69 trillion at Tuesday’s close, which represented about 29.1% of the total market cap of the S&P 500 companies of $40.11 trillion, according to a MarketWatch calculation of FactSet data.
The Seven saw their aggregate market caps increase by $207.5 billion, based on the shares outstanding provided in the companies’ latest quarterly filings, to reassert themselves as the market’s leaders.
Here’s how each of the Seven made out on Tuesday:
- Alphabet Inc.’s stock GOOGL, +1.16% GOOG, +1.34% rallied $1.53, or 1.2%, $133.62, to add $19.15 billion to the internet search behemoth’s market cap, which was $1.67 trillion at Tuesday’s close. The stock, which closed at a three-week high, has run up 7.7% amid a 10-session stretch in which it has gained eight times.
- Amazon.com Inc. shares AMZN, +2.25% climbed $3.21, or 2.3%, to $145.80, to increase the e-commerce and cloud services company’s market cap by $33.17 billion to $1.51 trillion. The stock closed at its highest price since April 25, 2022.
- Apple Inc.’s stock AAPL, +1.43% advanced $2.64, or 1.4%, to close at a 10-week high of $187.44. The technology behemoth’s market cap got a $41.06 billion boost to $2.92 trillion, to maintain its lead as the most valuable S&P 500 company.
- Shares of social-media giant Meta Platforms Inc. META, +2.16% surged $7.12, or 2.2%, to $336.31, the highest close since Jan. 4, 2022. The stock has closed higher for eight straight sessions, the longest win streak since the 11-day stretch that ended Sept. 21, 2015. Meta’s market cap rose by $18.30 billion on Tuesday to $864.3 billion.
- Shares of Microsoft Corp. MSFT, +0.98%, the second-most valuable S&P 500 company, moved up $3.59, or 1%, to $370.27, the fourth record close in the past six sessions. The software behemoth’s market cap increased by $26.68 billion on Tuesday to $2.75 trillion.
- Nvidia Corp. shares NVDA, +2.13% shot up $10.36, or 2.1%, to $496.56, their first record close since Aug. 31. The semiconductor maker and artificial-intelligence play’s stock has rallied 21.8% amid a 10-day winning streak, the longest such streak since the 10-day stretch that ended Dec. 27, 2016, according to Dow Jones Market Data. The company’s market cap got a $25.59 billion lift Tuesday to $1.23 trillion.
- Tesla Inc.’s stock TSLA, +6.12% charged $13.70, or 6.1%, higher, to a one-month closing high of $237.41. The electric-vehicle maker’s market cap swelled by $43.55 billion on Tuesday to $754.71 billion, which is $116.25 billion more than what it was at the end of October.
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