Strong jobs report

The October jobs report announced this morning revealed 250K jobs were added with the unemployment rate remaining at 3.7%.  Perhaps more importantly, wages grew 3.1% which represents a clear break from a long stretch of anemic wage growth.

What does this mean for REITs?  Below is the market’s take and my take

Market’s take

REITs sold off over a percent as the ten year Treasury yield rose above 3.2% on suspicions that the strong economy would give the Fed a green light for more hikes.  The market continues to think REITs are susceptible to rising rates and thereby vulnerable to a strong economy.

My take

REITs are operating businesses that can grow in the presence of economic strength.  While there are some defensive and acyclical REITs, the majority of them are fundamentally tied to the economy.  Retail, industrial, hotels, manufactured housing, and tech REITs each experience demand spikes as the economy grows.  We have 2CHYP positioned heavily toward these sectors because we believe the fundamental strength that comes with the favorable economic backdrop will easily overcome the slightly higher interest expense that comes with rising rates.

The impact of the favorable economic backdrop has been evident in the generally strong 3rd quarter earnings reports.  About half of the REITs in 2CYHP have now reported and we have uploaded earnings updates on each of them in the portfolio analytics section of our website.  Please check this out at your leisure.

I suspect market prices will continue to be volatile, but in the end, I believe fundamentals will dominate.

2CHYP Portfolio Snap Shot

11/1/18 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report:  No trades this week.