Real Estate Sector Ideas

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>>> One 'safe' trade wallops another


Yahoo Finance

by Julie Hyman

October 4, 2023


https://finance.yahoo.com/news/one-safe-trade-wallops-another-100038814.html


Bond yields are the new bane of the equity market.

But unlike other market moments over the past 18 months — like when they smacked down tech stocks — the pain is being felt much more widely.

In particular, traditional interest rate sectors that had mostly shrugged off earlier surges are now taking a hit. Since the beginning of August, when the 10-year yield hit 4%, utilities and real estate have plunged, falling about 16% and 14%, respectively.

Two key factors make these sectors particularly sensitive to rising rates. First off, they tend to have high debt loads, so their servicing costs are soaring.

Secondly, these have relatively high dividend yields, so they are in direct competition with Treasuries.

The SPDR Utility ETF yields 3.3%; the SPDR Real Estate ETF yields 3.9%. Contrast that with 10-year notes, where investors’ yield is hovering around 4.75% — ever higher out to 30 years. And as government debt, it’s viewed as virtually risk-free.

The latest bout of selling in utilities in particular on Monday was sparked by a warning last week from NextEra Energy (NEE) subsidiary NextEra Energy Partners (NEP).

NextEra happens to be the largest power company in the US by market cap.

The folks over at Bespoke Investment Group highlighted the slump in utilities in their Tuesday morning note, writing that shares have been “decimated.” Looking at the sector’s five-day slide, they found it’s underperforming the S&P 500 over that period by the most in a year.

So now what? Perhaps a bounce — which investors saw (at least somewhat) on Tuesday as the SPDR Utility ETF rose 1.1% while the S&P 500 fell in counterpoint 1.37%.

“It isn’t often that you see the sector get this oversold,” Bespoke wrote in that pre-bounce note.

Cantor Fitzgerald head of derivatives and cross asset Eric Johnston said “utes” could be poised to rebound.

In a Tuesday morning note, he laid out the momentum and technical indicators showing the XLU — that utility ETF — could bounce.

“With the macro getting very dicey, investors may soon look to utes again as a place of safety. At that point, everyone has already sold,” Johnston wrote.

Utilities could prove attractive if investors get more worried about the macro picture, since they’re typically viewed as defensive, which, to be fair, is a status at times in conflict with its interest rate sensitivity.

Maybe it was just all this positive energy that fueled Tuesday’s gains. Or perhaps the bounce is real and we’re pulling up off the bottom.

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