Why investors should focus on key housing releases this week

Part 2
Why investors should focus on key housing releases this week (Part 2 of 6)

Week in review: Key ISM services and productivity highlights

Last week was subdued on the data front

We didn’t have too much market-moving data last week. The main reports were the ISM services index, which came in better than expected. Productivity came in lower than expected, although that was driven primarily by the weather. Initial jobless claims came in lower than expected.

ISM non-manfEnlarge Graph

Janet Yellen speaks

Last week, Janet Yellen spoke in front of Congress, and nothing Earth-shattering came out of it. Typically, these Fed-head testimonies are more for the benefit of the politicians and their political posturing than they are for any meaningful information. Basically, the left tries to get the Federal Reserve Chair to say that income inequality is bad and the right tries to get the Federal Reserve Chair to say that our spending is too high. To her credit, Yellen didn’t seem to take the bait.

Commercial REITs will be encouraged by economic strength

Commercial REITs in the retail space, like Simon Property (SPG) and General Growth Properties (GGP), will certainly take comfort in the ISM Services report and the initial jobless claims report. This will undoubtedly be good news for office REITs like Boston Properties (BXP) and Vornado (VNO). The productivity report shows that firms have gotten about all they can from their current employees and will need to hire more people if they want to increase output, which is good news for the office REITs as well.

Implications for mortgage REITs

Mortgage REITs, like Annaly (NLY) and American Capital (AGNC), are driven by interest rates, which have been in a tight trading range. Investors are becoming more comfortable with the idea that the Fed isn’t looking to raise rates too soon (people seem to have digested the possibility, although it’s probably unlikely, that the Fed will start hiking rates at the June 2015 FOMC meeting. Last week, we heard from Annaly Capital, which reported lower-than-expected earnings. Janet Yellen didn’t say anything surprising in her testimony in front of Congress.

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