Prologis, Rising Interest Rates, and President Trump: Curses, or Blessings in Disguise?

The US Federal Reserve has raised interest three times since December 2016 and is expected to raise the interest rate one more time in 2017. Meanwhile, President Donald Trump has called upon US citizens and companies to “make America great again” and to “buy American, hire Americans,” which he believes will ensure growth in the economy.

Trump’s agenda originally appeared to boost confidence among Americans, and in early 2017, we saw improving job data in the US. We also saw low gas prices and a rising GDP early in the year. These improvements have spiked consumer confidence and optimism about the present state of the US economy.

According to results released by the University of Michigan for May 2017, the consumer sentiment index gained 2.5% YoY (year-over-year) in May—0.1% higher than the 97% level we saw in April 2017. The rising interest rate also indicates a growing economy.

Rising optimism in US markets bodes well for commercial REITs (real estate investment trusts) like Prologis (PLD), Duke Realty (DRE), Kilroy Realty (KRC), and Boston Properties (BXP). If the consumer index moves higher, people could increase their discretionary spending and make more visits to malls. This trend could increase online traffic and trigger a spike in retail activities, which would increase the demand for logistics services.

Notably, Prologis, Duke Realty, Kilroy, and Boston Properties together make up 14.1% of the iShares Cohen & Steers REIT ETF (ICF).