Hey savvy investors! Today, I’m bringing you an off-cycle video aimed at providing a timely update on what I see as pivotal moments ahead for REIT prices. After the Fed’s 50 basis point rate cut in September, REITs rallied, with the CSOP iEdge S-REIT Leaders ETF jumping more than 16%. But in the past few weeks, we’ve seen this rally pull back by around 7.5%.

With some major events on the horizon, I believe we’re at a critical juncture that could either reinforce this downward trend or potentially shift REIT prices back up. Let’s take a look at the key factors driving the recent rate hike and the upcoming events that could be game-changers.

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Interest Rate Reversal = Falling REIT Prices

Now, the key reason REIT prices have fallen is the upward trend of US interest rates. Let’s start by looking at what’s been pushing U.S. interest rates back up and, in turn, putting pressure on REIT prices.

1) Economic Resilience: Despite the rate cut in September, the U.S. economy has stayed strong. GDP grew 2.8% in Q3 2024, and corporate earnings have been solid, with S&P 500 companies reporting an 8.4% rise in earnings. This has investors worried that rates might stay higher for longer to prevent overheating.

2) Market Dynamics: Bond yields have been very volatile. For example, the 10-year Treasury yield dropped to around 3.6% after U.S. Fed cut rates in September, only to jump back up later to around 4.3%. This reflects market expectations of sustained growth and inflation, and that keeps upward pressure on interest rates.

3) Fiscal Concerns: The U.S. national debt has reached unprecedented levels, which raises fears about economic stability. This high debt situation has investors demanding higher returns to offset perceived risks, keeping rates elevated.

In short, the strong economy, bond market fluctuations, and fiscal concerns are all factors pushing rates up, despite the Fed’s recent cut.

Key Events Ahead: Potential Turning Points for REITs

Let’s move on to what’s coming up next week, because I believe we’re at a pivotal point for REIT investors. There are two major events on the horizon: the U.S. Presidential Election and the Federal Reserve’s upcoming meeting on interest rates. Now, I’m not here to discuss politics—far from it—but we can’t ignore the implications of the election on interest rates and the potential impact on REITs. Let’s take a closer look.

1) U.S. Presidential Election

The potential impact of the 2024 U.S. Presidential Election on interest rates largely depends on the economic policies proposed by the candidates, Vice President Kamala Harris and former President Donald Trump. While each candidate has their own economic agenda, Trump’s proposals, particularly around trade tariffs and potential Federal Reserve intervention, are seen by many economists as more likely to contribute to inflationary pressures. Higher inflation, of course, could necessitate higher interest rates to maintain economic stability. So, while we’ll stay out of the political discussions, it’s important to note that the election outcome may influence interest rate trends, which directly affects REIT prices.

2) Federal Reserve Meeting

Then, there’s the much-anticipated Federal Reserve meeting on November 6-7, where most market participants expect a 25 basis point rate cut, which would bring the target range down to 4.5% to 4.75%. Recent economic data, like the PCE inflation index falling to 2.1% and a significant slowdown in jobs growth, seem to support this potential cut. However, let’s not forget the uncertainties here. If the Fed decides not to announce a cut, we could see even more downward pressure on REIT prices as markets react negatively.

On the flip side, if the Fed does announce a cut but the bond markets continue trending upwards due to economic resilience or fiscal concerns, that would still pose a challenge for us as REIT investors. Rising bond yields make REITs less attractive by comparison, so we’d still face headwinds even with a rate cut. In short, while a cut could offer some relief, it’s far from a guaranteed turnaround if other market forces keep yields elevated.

The Dividend Uncle’s Take

For me, I’ll be holding my horses and keeping a close eye on what unfolds in this very impactful week of events. The U.S. Presidential Election and the Federal Reserve meeting could both bring pivotal changes, and I think it’s wise to monitor how things develop before making any short-term moves. These are tactical adjustments in my approach: I’m not planning any major shifts, just fine-tuning based on the immediate signals from these critical events.

In the long term, however, my outlook remains positive. I continue to expect interest rates to gradually decline as inflation stabilizes and economic growth levels off. This should set the stage for REIT prices to perform better over time, rewarding those of us who stay invested in quality REITs. So, while we navigate these short-term fluctuations, let’s remember that the broader trend remains favorable for REIT investors who can weather the ups and downs.

That’s all folks, and thanks for joining me. Until next time, happy investing!