To The Moon

$CapLand IntCom T(C38U.SI)$ $Mapletree Ind Tr(ME8U.SI)$ $Frasers Cpt Tr(J69U.SI)$

If you're a REIT investor, you're probably feeling a bit frustrated at the moment. Over the past 12 months, we've seen two potential REIT rallies—once in late 2023 and again in October 2024—only to watch them fade away, leaving us where we started. Both rallies were fueled by the prospect of lower interest rates, but instead of sustained gains, we’ve been left disappointed as expectations faded, and the market seems stuck in a rut. To make matters worse, there's now talk of inflation making a comeback, leaving REIT investors on edge.

C38U

However, as we near the end of 2024, we face a pivotal moment: the Federal Reserve’s December meeting, where they’ll decide whether to cut interest rates for a third time this year. This decision could influence REIT performance as we head into 2025. Will the Fed provide the boost REIT investors are hoping for, or will the market remain under pressure?

In this article, we’ll explore the key factors driving the Fed’s decision, what it could mean for us as REIT investors, and how I’m preparing my portfolio for what’s next. Before we dive in, I must remind you that this content is for informational and educational purposes only and does not constitute financial advice. The opinions expressed are based on publicly available information and personal analysis, not tailored to your financial situation. The REITs and institutions mentioned are purely examples, and I may hold positions in some of the discussed investments. Before making any decisions, it’s always a good idea to consult a licensed financial adviser.

Let’s get started!

What’s Driving the Fed’s Decision

The Fed has much to consider going into its final meeting of the year. While many of us hoped for another rate cut in December, recent economic data has thrown a curveball. Here’s a closer look:

Inflation

Inflation Remains Stubborn Inflation has been the Fed’s focus all year, and unfortunately, it’s still higher than they’d like. The Personal Consumption Expenditures (PCE) price index, their preferred gauge, rose 2.3% year-over-year in October, up from 2.1% in September. Excluding volatile food and energy prices, Core PCE rose to 2.8%. The Fed’s 2% target is still out of reach, which could make them hesitant to cut rates further.

GDP

A Surprisingly Resilient Economy Despite higher interest rates, the U.S. economy is holding up well. Unemployment is steady at 4.1%, and consumer spending remains strong, contributing to a solid 2.8% GDP growth in Q3. This economic resilience might make the Fed feel there's no rush to cut rates, as cuts are typically used to support a struggling economy.

Mixed Signals from the Fed While some market participants expect a 25-basis-point cut, recent comments from Fed officials suggest they’re leaning towards holding rates steady. Neel Kashkari, President of the Minneapolis Fed, recently said that any decision to cut rates would depend on inflation data showing signs of easing. If inflation stays high, the Fed may decide to wait for clearer signals before making a move.

What This Could Mean for REITs and Dividend Investors

Let’s look at the two possible outcomes from the Fed’s decision and what they could mean for REITs and dividend-focused investors:

Scenario 1: The Fed Cuts Interest Rates

With a 66% chance of a 25-basis-point rate cut, let’s explore this scenario. If the Fed cuts rates, it could provide much-needed relief to REIT investors. Lower rates would reduce financing costs for REITs, giving managers more room for growth initiatives, such as acquisitions and asset improvements, without worrying as much about rising debt costs. This could lead to improved profitability and potentially higher or more stable dividends, which would be positive for income-focused investors. Additionally, REIT prices, which have struggled with high interest rates, could rebound, especially for undervalued REITs offering strong yields.

Scenario 2: The Fed Holds Interest Rates Steady

If the Fed decides to hold rates steady, REIT investors may face another round of challenges. High borrowing costs would continue to pressure REITs, especially those with higher leverage. This would limit their ability to refinance debt affordably or pursue growth opportunities. As a result, distributed income could remain constrained, and the potential for higher dividends might be reduced. Market sentiment could suffer, as a rate pause might signal that inflationary pressures are still too persistent for the Fed to ease further. In this scenario, defensive, high-quality REITs with strong fundamentals and lower debt exposure may be better positioned.

The Investment Opportunity

As REIT investors, we’ve seen how sentiment can swing based on Fed decisions. While the December meeting’s outcome is uncertain, I believe it’s important to stay grounded and focus on investment fundamentals. Both scenarios—whether rates are cut or held steady—present challenges and opportunities. I’m focusing on well-managed REITs with strong balance sheets, which may be better positioned to navigate the turbulence.

In my portfolio, I’m holding positions in REITs such as CapitaLand Integrated Commercial Trust, Mapletree Industrial Trust, and Frasers Centrepoint Trust. While the Fed’s decision will drive short-term volatility, market timing is tricky, and no one can predict outcomes with certainty. That’s why I’m focusing on my overall portfolio strategy. As mentioned previously, I’m raising cash levels to take advantage of future opportunities while continuing to dollar-cost average into quality positions aligned with my long-term goals. I’m also investing in growth stocks like U.S. tech to complement my dividend-focused portfolio.

Remember, my portfolio decisions may not be suitable for everyone, so always do your own due diligence and consult a licensed financial adviser to ensure your investments align with your financial goals and risk tolerance.

Lastly, let’s not forget the bigger picture. Economic cycles come and go, but high-quality investments tend to stand the test of time. Whether the Fed cuts rates or holds them steady, let’s stay disciplined, remain patient, and focus on the horizon.

That’s all for today’s. With the Fed’s December meeting approaching, the stakes are high for REIT investors and dividend seekers. Whether rates are cut or held steady, staying prepared and focused on quality investments is key.

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