Janet Yellen Tries to Bring Clarity

For months, investors have fretted over how a decision to raise interest rates would hurt real-estate investment trusts. But REIT share prices have outpaced the broader market since the Fed left rates unchanged.

Sourced through Scoop.it from: www.wsj.com

Warren Buffet once said that we should buy stocks for the next five to ten years he very well may have been referring to the volatile times that we have recently been experiencing. Perhaps in five years, when the smoke clears, we will look back, and agree with him.

Last week, Janet Yellen missed out on a great opportunity to set the pacing and indicate a path for interest rates. The current highs and lows of the stock market may be attributed to the lack of a clear-cut economic horizon. Yesterday, Yellen tried to correct the market’s trajectory by saying at the University of Massachusetts in Amherst it would be appropriate to raise the rate this year. 

Last week’s “Relief Rally”, as it was referred to by the Wall Street Journal, was proven to have been short lived. We will most likely suffer through another period of vast uncertainty as the Fed meets twice until mid-December. Real Estate Investment Trusts (REITs) that have long-term leases performed far better over the past week. This fact confirms that many investors have gambled on the continuance of near zero interest rates. On the opposite end, REITs with short-term leases, such as Lodging, have performed extremely poorly. If Yellen decides to change the status quo, the market will very well shift directions, causing a shift in the buying pattern. 

We have observed a divide between REIT fundamentals and the behavior of the financial markets. Although the former has been performing well, the latter has certainly been extremely volatile. If the market instability remains, REITs, which issue equity to fuel growth, will suffer from the affected funding. We may just see REITs accompanying the market mood. 

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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