Hey there, savvy investors! Today, I want to address something that’s been causing some anxiety in the market. Last Friday, October 4th, we got some strong jobs data out of the US, and with it, interest rates shot back up. REITs, including the CSOP iEdge S-REIT Leaders ETF, fell by around 2.5%.

Even more specifically, we saw share prices for Mapletree Pan Asia Commercial Trust and Mapletree Logistics Trust fall nearly 4%! I talked about these 2 REITs leading the charge in the REITs rally in my previous video/ post: is the investment thesis over? But before you hit the panic button, let me explain why this might actually be good news for us.

Before we dive in, I must let you know that this content is for informational and educational purposes only and does not constitute financial advice. The opinions expressed are based on publicly available information and personal analysis, and they are not tailored to your specific financial situation. The REITs and institutions mentioned are cited purely as examples. While I have no affiliations, sponsorships, or financial relationships with any of them, I may personally hold positions in some of the investments discussed. Before making any investment decisions, you are strongly encouraged to consult a licensed financial adviser.

What Happened with Jobs Data and Interest Rates?

So, what’s causing the market to react? On October 4th, the US released really strong jobs data. Naturally, when the economy looks strong, the market starts rethinking how fast interest rates will be cut. In this case, the 10-year treasury rates went up, because the expectation of a 50bps rate cut by the US Fed quickly vanished. Investors started to worry that slower rate cuts might hurt REITs.

And yes, a slower pace of rate cuts can dampen some of the momentum we’ve seen in REITs recently. But I’d argue that this is actually a good thing in the bigger picture.

Stronger Economy Is Better Than Fast Rate Cuts

Here’s the thing: we want a relatively strong economy. A healthy, steady economy where the US Fed can cut interest rates gradually is far better for REITs in the long run. The alternative would be a weak economy where the Fed is forced to make drastic cuts to save it, and that would be worse.

Why? Well, while lower financing costs help REITs, if the economy is weak, rental growth will plummet even faster. You don’t want tenants struggling, vacancies rising, or rent prices falling just because the economy can’t support them. A strong economy means tenants are thriving, rental demand is solid, and that gives REITs the stability they need to keep generating income.

Don’t Worry, It’s All Part of the Plan

Now, let’s tie this back to what the US Fed has been doing. Remember back in September when the Fed cut interest rates by 50bps? Initially, the market panicked, thinking this big cut was a sign that the Fed saw trouble ahead. But Jerome Powell and the Fed made it clear—they cut because inflation was back under control, not because the economy was in trouble.

They also projected that future rate cuts would be smaller, likely 25bps cuts. But what did the market do? The market got ahead of itself and started pricing in an expectation of another 50bps cut!

Then came the strong jobs data last Friday, and all of a sudden, those expectations for a big rate cut were gone. REITs took a hit, and some investors started worrying. But for me, all that has happened is within the US Fed’s expectations. This is great news, because it shows capable hands are on the wheels, and it confirms that the economy is doing well.

The Dividend Uncle’s Take

So here’s my take: Jerome Powell and the US Fed know what they’re doing. A strong economy means REITs will still thrive, even with slower rate cuts. For me, I’m sticking to my buy list that I shared with you previously, and I’m not getting scared off by short-term market noise. If my favorite REITs fall further, it will present an even more enticing buying opportunity for me.

So don’t panic, stay focused, and remember: REITs are long-term investments, and the fundamentals haven’t changed. As always, like and subscribe if you found this short “reactions” post useful, and would like to see more quick thoughts from ‘The Dividend Uncle’. Catch you in the next one!