Displaying items by tag: fed

According to Nareit, an organization that represents the REIT industry, REITs posted their best monthly returns since January 2019 and outperformed the broader markets. The FTSE Nareit All Equity REITs index jumped 10.1% while the FTSE Nareit Equity REITs index rose 10.7%. Those figures compare favorably to the 7.0% gain of the Dow Jones U.S. Total Stock Market and the 6.7% gain for the Russell 1000. The strong returns came as a result of investor optimism stemming from the widely expected belief that the Federal Reserve will pivot from its rate hiking cycle as inflation slows. In addition, REIT operational performance continues to be strong. For instance, REITs reported a new all-time high of $19.9 billion in funds from operations in the third quarter of 2022 according to Nareit’s T-Tracker. During January, all property sectors had a positive performance. The top sectors include lodging/resorts with a 17.1% gain, industrials which rose 13.7%, and data centers at 13.2%. Even the laggard sectors were positive, with retail rising 7.4% and infrastructure gaining 6.8%. Global real estate markets also performed strongly with the FTSE EPRA Nareit Developed index gaining 9.0% compared to a 7.3% gain for the FTSE Global All Cap. In terms of regions, Developed Europe led with a return of 10.8%, followed by North America at 10.7%, and Developed Asia at 3.7%.

Finsum:REITs posted the strongest monthly performance since January 2019 as investors remain optimistic that the Fed will slow its rate hiking policy and REIT operational performance remains robust.

After a tough year in the equity markets, this year is shaping up to be a better year for investors as the S&P 500 is up over 7% through Monday’s close. This is happening amid numerous recession predictions across Wall Street. The rise in the stock market this year can be attributed to the growing sentiment that the worst is over when it comes to inflation and rising interest rates. In fact, a gauge of future volatility in the U.S. bond that tracks interest-rate turbulence is now showing an increasingly encouraging trend that is supporting the optimism in the market. The ICE BofA MOVE Index is extending a slide that started in October. It has now fallen to lows not seen since March when the Fed started its aggressive interest-rate increases. The index continued to fall after the Fed’s latest meeting on Wednesday, where according to billionaire investor Jeffrey Gundlach, Fed Chair Jerome Powell “didn't fight back in his speech Wednesday against market expectations that the Fed will soften its rate policy later this year.” The Fed raised benchmark borrowing costs by only 25 basis points, the smallest increase since last March. Over the past year, the trajectory of the S&P 500 has moved inversely to the MOVE index, showing the market's sensitivity to the interest-rate outlook.

Finsum:The stock market has rebounded this year as the ICE BofA MOVE Index, which measures bond volatility, has been sliding since October.

While bonds are generally known for their stability, 2022 marked a deviance from the norm. The question for advisors is, how should they approach 2023? Mariam Kamshad, head of portfolio strategy for Goldman Sachs personal financial management, and Guido Petrelli, CEO, and founder of Merlin Investor spoke to SmartAsset to provide some guidance. First advisors should expect a return to the norm. Kamshad said 2022 was an unusually bad environment for bonds with the Federal Reserve raising rates to a 15-year high. She believes that's unlikely to repeat and expects both yields and capital gains returns to stabilize. Second, advisors should pay attention to inflation and government bonds. Kamshad believes that inflation is still the biggest issue in the economy and expects it to continue slowing in 2023, which would likely slow interest rates. Her team considers duration risk a better bet than credit risk. Kamshad's team also recommends investors consider government bonds. The team expects intermediate Treasurys to outperform cash. They also expect municipal bonds to pick back up. Petrelli recommends following the unemployment rate and the quit rate as they are “good metrics for the strength of the economy overall and a window into where bonds are headed.” He believes a potential recession is one of the biggest questions facing the bond market. In a recession, Petrelli expects investors to favor short-term bonds.

Finsum:According to two portfolio analysts, advisors should expect a return to the norm for bonds, but they should also keep an eye on inflation, government bonds, and the jobs report.

Last month, we wrote about a survey that revealed advisors are seeing the importance of active ETFs since owning passive index-only ETFs left them too exposed to market conditions. Another survey was performed this month showing similar results. VettaFi held a webcast called Active Strategies for Rising Rate Headwinds that featured Franco Ditri and Chris Murphy of T. Rowe Price and Todd Rosenbluth of VettaFi talking about the Fed’s monetary policy outlook and how financial advisors can incorporate active strategies into a bond portfolio. After the webcast, a poll was taken revealing that more advisors are seeing the need to add active management to their portfolios, given the likelihood that the Fed will continue to raise rates. The majority of respondents expect to increase their exposure to active ETF strategies, with 50% being “very likely” and 39% saying they are “somewhat likely.” Of those, 39% of respondents said they would most likely consider high-yield/bank loan funds for exposure, with 27% saying they would consider active short-term bond funds. In addition, 20% are contemplating core-plus and 14% are looking toward core bond funds. If the Fed continues its tightening policy, actively managed fixed-income strategies could help reduce risk.

Finsum:A post-webcast poll revealed that more advisors are seeing the importance of active fixed income with the Fed continuing to pursue a tight monetary policy.

If DataTrek Research is correct, we can’t expect a new bull market to commence until volatility declines. The research firm said that volatility isn’t expected to decline until two things happen. The first is the Federal Reserve stopping its interest rate hikes and the second is more clarity on corporate earnings expectations as we head into a potential recession next year. The firm believes that if investors can gauge those two factors, then they can capitalize on large stock market returns. They listed the S&P 500's 28% gain in 2003 after the dot-com bubble, the 26% gain in 2009 after the Financial Crisis, and the 61% surge from the COVID-19 low until the end of 2020 as examples. DataTrek co-founder Nicholas Colas stated, "For volatility to structurally decline and drive those high returns, investors need to have growing confidence they know how corporate earnings will develop. This means they must have a handle on monetary/fiscal policy." At present, investors are not sure about those factors. The Fed recently surprised the market when it indicated that it will likely raise rates by another 75 basis points next year and leave them higher for longer. In addition, analyst earnings estimates are all over the place.

Finsum:According to DataTrek Research, investors shouldn’t expect a new bull market in stocks until the Fed stops rising rates and there is more clarity on earnings expectations.