Investors' sudden enthusiasm for property stocks in this week's market chaos suggests they are getting ready for interest rate cuts, but not a full-blown recession.
Shares in homebuilders, apartment owners, office landlords and malls all rallied in recent days.
At the same time, investors gave real-estate stocks that are exposed to the AI build-out a wider berth. Shares in data-center owners Blackstone Digital Infrastructure Trust and Equinix are flat since the midterm election result.
The Democratic sweep and Republican infighting over the Iran war could be good news for real estate if it forces President Trump to find a resolution to the conflict soon. This would ease inflation caused by high energy prices and allow the Federal Reserve to cut interest rates.
Real estate is one of the most interest-rate-sensitive parts of the economy, so lower borrowing costs would lift property values.
The rush into property stocks doesn't look like a recession trade, though. Investors bought companies that would suffer in a slowdown, such as mall owner Simon Property Group and Manhattan office landlord Empire State Realty Trust.
Compare that with what happened after Liberation Day. Shares in housing and cell-tower stocks outperformed, as investors bet that Americans would prioritize paying the rent and their cell-phone bill if the trade war triggered a recession. But they dumped shares in companies exposed to nonessential consumer spending such as mall stocks and warehouse giant Prologis.
Not all selloffs are equally scary.
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