Investors are dumping real estate stocks after a hotter-than-expected inflation reading quashed expectations for an imminent break from elevated interest rates.
An index of real estate shares lost more than 4% Wednesday, putting the gauge on track for its worst day since mid-2022. The industry is the weakest group in the S&P 500 Index on the day, as well as for the month of April. Utilities also took a beating Wednesday as the report on consumer prices led traders to anticipate fewer Federal Reserve interest-rate cuts this year, a serious headwind for sectors so tied to borrowing costs.
“Absent a geopolitical shock, utilities and real estate stocks may be in a holding pattern after today’s drawdown,” said Joe Gilbert, portfolio manager at Integrity Asset Management LLC.
Losses in real estate were largely led by commercial real estate companies. Real estate investment trusts Extra Space Storage Inc. and SBA Communications were the biggest drags on the sector by percentage. Regional bank shares also tumbled, led by Valley National Bancorp, New York Community Bancorp and Provident Financial Services.
Meanwhile, a gauge of utilities shares was down about 2% on the day.
“For utilities, it’s a double whammy—one, they are heavily leveraged so their borrowing costs will stay elevated,” said Keith Lerner, chief market strategist at Truist Advisory Services, which is underweight real estate and utilities. “Secondarily, higher interest rates mean cash remains an attractive alternative relative to utilities.”
This article was provided by Bloomberg News.