- Equities stagnate as oil falls anew. Equities are starting the day near flat, which is no surprise given the holding pattern that markets have adopted ahead of Federal Reserve Bank (Fed) Chair Yellen’s speech this Friday. WTI crude oil is down around 1% this morning on a surprise stockpile build; the market will scrutinize another inventory report due out later this morning. The S&P 500, Dow, and Nasdaq all began Tuesday’s session strong, yet finished with minor gains; the materials and consumer discretionary sectors outperformed, offset by utilities. Overseas, the Nikkei Index reversed yesterday’s losses, gaining 0.6%, the Shanghai Composite lost 0.1%, European shares are green again following Tuesday’s healthy gains. Meanwhile, COMEX gold has pulled back near its 50-day moving average and Treasuries are mixed, with the yield on the 10-year note sitting at 1.55%.
- Strong new home sales. Sales of new single-family homes surged in July to a better than expected 654,000 units, an increase of 12.4% from the prior month and a whopping 31.3% from July 2015. June sales were revised down by 10,000 units, so it is possible that the July figures will come down later, but this is a strong number regardless. The South and Northeast regions were particularly strong, while the percentage of homes under construction saw the biggest rise (the share of homes not yet under construction or fully completed both fell). The median home price dipped 5% month over month to $298,200, suggesting that sellers dropped prices to complete sales, though prices did rise 4.1% year over year. The market for new homes tightened further with just 4.3 months of inventory on the market in July based on the inventory-sales ratio, down from 4.9 months in the prior month and 5.5 at the start of the year, which could lead to renewed firmness in pricing and increased supply in the coming months. We continue to expect that housing will contribute positively to gross domestic product (GDP) growth in 2016 (as it has since 2011) via the residential investment category. More housing data are due out today with existing home sales at 10 a.m. ET.
- Real estate about to become its own sector. On September 1, 2016, real estate will become the 11th sector under the widely used Global Industry Classification Standard (GICS), the first such change since the inception of the system in 1999. Some have speculated that this move would lead more generalist active managers to own more real estate investment trusts (REIT) than in recent years, because REITs are currently contained within the financials sector and thus can get lost among the banks, insurance companies, asset managers, and brokerage firms. As a result, ownership of REITs may be lower than it might be otherwise. In our latest Timely Topics, we discuss potential implications of this move. We expect the reclassification to have some positive impact on REITs, though likely modest.
- Our REIT view remains modestly positive. We believe real estate fundamentals are generally favorable, with steady economic and job gains but not sufficient to enable the buildup of excesses that have ended prior cycles. Yields are attractive, REITs offer diversification benefits, and they have generally performed well in modestly rising inflation environments such as we expect for the rest of 2016 and into 2017. Interest rate sensitivity is our biggest concern as we expect rates to move gradually higher going forward, while valuations are also cause for some pause.
- Goods Trade Balance (Jul)
- GDP (Q2 – Revised)
- Fed Chair Yellen speaks at Jackson Hole Policy Symposium
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