A quiet week on the economic data front
Last week was a slow week economically, which is usually the case in the week following the jobs report. About the only report that could have been considered market moving was the much stronger than expected initial jobless claims report, which came in at 300,000 on the nose. This speaks to a healing jobs market, which is music to the ears of the Fed. Speaking of the Fed, we also had the FOMC minutes last week, which seemed a tad more dovish than people were expecting. Janet Yellen’s “as soon as six months” comment certainly appears to represent the thinking of a few members and not everyone.
Earnings season kicks off
Last week started earnings season with the traditional announcement out of Alcoa (AA). Following Alcoa’s numbers, we heard from a couple big banks, J.P. Morgan (JPM) and Wells Fargo (WFC). J.P. Morgan disappointed the Street and the stock was hit for a couple of bucks on Thursday. Wells beat numbers and the stock rallied in the face of a lousy tape.
We heard from KB Home (KBH) and Lennar (LEN) recently. Both reported strong numbers, and average selling prices continue to rise. The homebuilding segment has definitely been a case of two sectors—the luxury sector, which is doing extremely well, and the first-time homebuyer sector, which is getting bombarded by increasing real estate prices, rising interest rates, and a lousy job market.
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 initial jobless claims report, which signals jobs growth. This will undoubtedly be good news for office REITs like Boston Properties (BXP) and Vornado (VNO).
Implications for mortgage REITs
Mortgage REITs, like Annaly (NLY) and American Capital (AGNC), are driven by interest rates, which basically went nowhere. 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 probably unlikely, that the Fed will start hiking rates at the June 2014 FOMC meeting).