Earnings season and the Malaysian jetliner influence investments
Weak economic data and bank earnings dominate the week
Last week started earnings season in earnest, with many of the major banks reporting numbers. Economically, we had a number of weak economic reports, driving bond yields lower. The markets were also influenced by the Malaysian jetliner that was shot down over Ukraine.
Retail sales came in weaker than expected on the headline number. But when you take into account the revisions and strip out volatile commodity components, it really wasn’t that bad.
The industrial data, though, was weaker than expected. Industrial production only increased 0.2% and capacity utilization was flat. Finally, the housing starts and building permits data was much, much weaker than expected.
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Commercial REITs will be encouraged by economic strength
Commercial real estate investment trusts (or REITs) in the retail space, like Simon Property (SPG) and General Growth Properties (GGP), will be able to live with the retail sales data. Office REITs like Vornado Realty Trust (VNO) will be worried about the industrial data, which could be signaling a slowdown
Implications for mortgage REITs
Mortgage REITs, like Annaly (or NLY) and American Capital (or AGNC), are driven by interest rates, which have been in a tight trading range. The Malaysian jetliner obviously contributed to some of the strength in bonds. But the biggest reason was the weak economic data. REITs are certainly happy to see rates moving lower rather than higher.
Implications for homebuilders
Homebuilders, like PulteGroup (PHM) and D.R. Horton (DHI), focused on the weak housing starts numbers. It certainly appears that the builders are happy to keep increasing prices and willing to live with lower unit growth. At some point, that game won’t work anymore. But for now, it appears that the next quantum leap in housing—getting back to a semblance of normalcy—will be a 2015 event.