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Earnings reports from REITs like Annaly shape the market


Aug. 11 2014, Updated 1:41 p.m. ET

Not much economic data, but a lot of earnings

The week after the jobs report tends to be very data-light, and last week was no exception.

The ISM Non-Manufacturing Report showed increased momentum in the service sector, while the IBD/TIPP Economic Optimism report showed consumer confidence taking a hit. But dissatisfaction with Washington drove that change.

Finally, on Friday, we saw productivity rebound. Also, employment costs were well-contained, although the revision to the first quarter Employment Cost Index was revised upward to 11.8%. This was a very surprising number.

On the earnings front, we heard from mortgage REITs Annaly (NLY), MFA Financial (MFA), and Nationstar (NSM). We also got earnings from Vornado Realty Trust (VNO).

Commercial REITs will be encouraged by economic strength

Commercial real estate investment trusts (or REITs) in the retail space, like Simon Property Group (SPG) and General Growth Properties (GGP), focused on the Economic Optimism data.

Office REITs like Vornado Realty Trust pretty much focused on the ISM services index because it’s a leading indicator for hiring.

Implications for mortgage REITs

Mortgage REITs, like Annaly and American Capital Agency (AGNC), are driven by interest rates. Rates have been in a tight trading range.

Last week didn’t have much in the way of market-moving data, but bonds continued to rally based on concerns overseas and weakness in Europe.

Implications for homebuilders

Last week, we heard from Standard Pacific (SPF). The pattern of low, or negative, unit order growth combined with big increases in average selling prices is continuing.

It certainly appears the builders are happy to keep increasing prices and are willing to live with lower unit growth. At some point, that game won’t work anymore. But for now, it appears the next quantum leap in housing—getting back to a semblance of normalcy—will be a 2015 event.

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