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Hey savvy investors! It’s time for another quick update on REIT Bites with The Dividend Uncle. If you’ve been following the markets, you’ve probably noticed some blood on Wall Street overnight on 18 December: the S&P 500 slumped close to 3%, and Singapore REITs weren’t spared either, falling about 1%. But wait, wasn’t the US Fed’s 25bps rate cut yesterday supposed to be good for stocks? Let’s unpack this quickly!

On the surface, lower interest rates are typically a positive for stocks, especially for REITs and dividend stocks, because borrowing costs go down. However, as I’ve mentioned in my previous posts, the current market environment is volatile. The issue isn’t just about the rate cut anymore, it’s more about what comes next.

US Fed Chair Jerome Powell delivered a hawkish message, signaling that interest rate cuts in 2025 could be much slower than the market expected. Why? Inflation remains stubbornly high, employment figures are still strong, and now there’s uncertainty over whether President-elect Trump’s policies, once he takes office in January, will be inflationary. Some analysts are even suggesting that the Fed may have jumped ahead of itself by hinting at slower rate cuts too soon.

This shift in signal has left the market reeling. Previously, the market was pricing in at least 75 basis points of rate cuts in 2025, but after Powell’s comments, expectations have been dialed back to just 50 basis points. For US stock investors, where the S&P 500 index has been setting record highs after record highs, this rate cut decision has sent a shockwave through the market, with the S&P 500 slumping 2.95% and tech-focused Nasdaq 100 plunging 3.56%, as investors recalibrate expectations for growth and valuations.

For REIT investors, this means the pace of relief from lower borrowing costs may not be fast enough to offset the current pressures, such as rising debt costs and slower DPU growth.

The Dividend Uncle’s Quick Take

Now, I know this feels like more bad news for REIT investors, and I won’t pretend it is not. But let’s not forget that volatility is part of the game. I know I have been repeating this like a broken recorder, but for long-term investors, it’s crucial to stay focused on quality REITs with strong fundamentals. In the meantime, keep a close eye on inflation data and any new signals from the Fed. These will shape the outlook for REITs heading into 2025.

As always, this content is for informational and educational purposes only. It is not financial advice. Always consult a licensed financial adviser before making investment decisions.

Alright, that’s all for today’s REIT Bites! If you found this update helpful, consider giving me a ‘like’ to keep the conversation going. Until next time, happy investing!