Yesterday, the real estate sector of the US stocks continued to show strong performance, including $Iron Mountain (IRM.US)$Please use your Futubull account to access the feature.$D.R. Horton (DHI.US)$Please use your Futubull account to access the feature.$Simon Property (SPG.US)$ achieving new closing highs, and the annual gains of many real estate stocks all exceeded 20%, outperforming $S&P 500 Index (.SPX.US)$ Annual growth rate of 17.84%.

CITIC Securities believes that the prosperity of the real estate market and interest rates are negatively correlated, so once the Federal Reserve starts an interest rate cut cycle, investment targets related to the US real estate market are worthy of attention.

A significant downward revision in non-farm employment may prompt the Federal Reserve to be more proactive in cutting interest rates.

The US Bureau of Labor Statistics announced on Wednesday that non-farm employment data for the 12 months ending in March 2024 was revised downward by a preliminary 0.818 million people. The previously released non-farm data showed a total of 2.9 million jobs added during the adjusted reporting period, an average of 0.242 million people per month. After deducting 0.818 million people, the average monthly growth rate will decline to 0.174 million people.

In March 2022, the Federal Reserve raised rates from near zero to a range of 5.25% to 5.5% and maintained it for over a year. But now inflation is subsiding, and investors have been pricing in rate cuts for a long time. The outlook was slightly strengthened by the significant downward revision in non-farm employment on Wednesday: according to CME 'FedWatch', the probability of a 50 basis point rate cut by the Fed in September increased to 36%, up from 27.5% on Monday.

Institutions are bullish on investment opportunities in the US real estate sector.

CITIC Securities expects that the upcoming US interest rate cut cycle may also be accompanied by investment opportunities in the US real estate sector. Overall, interest rates are a key factor affecting the US real estate cycle, although the performance of the US real estate industry was somewhat atypical during the last rate hike cycle. Specifically:

The performance of the large-scale REITs in the US is clearly negatively correlated with interest rates, but it may change ahead of the changes in interest rates.

US housing builders have developed rapidly in recent times and may also benefit from rising housing prices, expanded real estate investment and construction scale in the future. However, history has shown that their risk resistance is not as good as property holders in extreme environments such as financial crises and recessions.

The internal business capabilities and layout of real estate service providers have a greater impact on their market value and are less affected by cyclical factors.

Wedbush believes that it's a good opportunity for US REITs. The Wedbush analyst team stated in a recent report: "Although the pace of the overall real estate transaction market has been slow in the past 18-24 months, REITs focusing on net leasing largely rely on tenant relationships to continue external growth momentum, and their stability is stronger than real estate stocks."

The overall trend of the Fed lowering the benchmark interest rate may help improve the capital cost of the entire real estate industry. According to the Wedbush report, private investors may rejoin the competition, which could affect market trading volume and yield caps. "Therefore, we are in a positive industry growth trend," said the analysts at the institution.

For specific symbols, Wedbush covers four net leasing-focused REITs in the US market, including $Essential Properties Realty Trust Inc (EPRT.US)$ and $Broadstone Net Lease (BNL.US)$ Given a 'outperform' rating on $Netstreit (NTST.US)$ and $Realty Income (O.US)$ given a 'neutral' rating.

How to seize investment opportunities in the US real estate sector?

The US real estate market-related symbols can be roughly divided into three categories:

Equity-type commercial real estate REITs represented by $D.R. Horton (DHI.US)$ Real estate construction companies represented by D.R. Horton;

Equity-type commercial real estate REITs represented by $CBRE Group (CBRE.US)$ ;

Equity-type commercial real estate REITs represented by $Simon Property (SPG.US)$ .

Due to the historical performance of the real estate sector being mostly negatively correlated with interest rates, but with huge differences among different sub-industries and companies, investors can grasp the opportunity of the rise in the U.S. real estate sector through investing in ETFs, apart from the individual stocks mentioned above. Specifically, they can pay attention to $Vanguard Real Estate ETF (VNQ.US)$Please use your Futubull account to access the feature.$iShares US Real Estate ETF (IYR.US)$ and other symbols.

In addition to the aforementioned ETFs, there are still other U.S. real estate ETFs available in the market for investors to choose from. Mooers can click on Market > ETF > Theme ETF > North American Real Estate ETF to view them~

Editor/Jeffy