Sometimes "boring" is good, especially in times of market turmoil. The S & P 500 real estate and utilities sectors are up 7.4% and 6.
7%, respectively, over the past month. In that time, the S & P 500 has dropped more than 6%. They have also been relative outperformers this week: both spaces are down more than 1% in that time, while the S & P 500 has shed nearly 3%.
Those returns don't include potential dividends from the boring group either. That outperformance comes as expectations for Federal Reserve interest rate cuts have grown due to worries over the state of the U.S.
economy. A rotation out of this year's winners and into 2024 laggards also boosted the sectors. Utility companies tend to have higher levels of debt, and lower rates can alleviate that pressure.
For real estate, easier monetary policy drives mortgage rates lower — boosting demand for housing investment in the space. Also the lower bond yields make the payouts from these stock groups more attractive to investors. .
GSPU .SPLRCR,.SPX 1M mountain Real estate and utilities vs S & P 500 in past month Wolfe Research chart strategist Rob Ginsberg noted the utilities sector is not only "holding up in the face of the recent carnage, but it is actually breaking out.
" He said the Utilities Select Sector SPDR Fund (XLU) , which tracks the S & P 500 sector, topped the $73 level for the first time in nearly two years this week. "We feel the sector continues to outperform as investors rotate into value names and defensive groups," Ginsberg said. As for real estate, it reached its highest closing level earlier this month since February 2023.
One way to gain exposure to the space could be through Vornado Realty stock, according to BMO Capital Markets. The firm upgraded the real estate investment trust to outperform from market perform. Its price target of $40, up from $29, implies upside of more than 33% from Wednesday close.
"Despite improving NYC office and retail fundamentals and a high-quality portfolio, VNO has recently been a show-me story. It is now showing: High leasing volume with attractive rents, dispositions at trophy valuations, and execution on its major redevelopments in PENN Plaza," analyst John Kim wrote on Thursday..
