Market Commentary | August 11, 2022

The Bipolar Markets

On July 28, the Bureau of Economic Analysis announced that real gross domestic product (GDP) decreased at an annual rate of 0.9 percent in the second quarter of 2022. In the first quarter, real GDP decreased by 1.6 percent.  By some definitions, two consecutive quarters of decline signal that the economy is in recession.

Stock and bond prices rallied on the news because investors hoped a recession might slow the Fed’s aggressive pace of inflation fighting interest rate hikes. The rally came to an abrupt end on August 5th, however, when the Bureau of Labor Statistics announced that the 528,000 new jobs created in July brought the unemployment rate down to pre-pandemic levels of 3.5%.

What’s an investor to do?

Stick to the Details

While macroeconomic news can create anxiety-inducing price gyrations, ongoing analysis of individual companies’ operations can uncover opportunity. For example:

*Armada Hoffler (AHH) announced the sale of 3 properties at 4% cap rates realizing $10s of millions in capital gains and providing ample capital to fund their development pipeline. AHH followed on with a 12% dividend hike.

*On April 28th Amazon.com (AMZN) announced that they were reversing their breakneck pace of acquiring/leasing additional distribution centers and would be subletting 10-30M square feet of their space; Industrial REIT share prices fell 20%, in response. Throughout July, one after another industrial REIT reported record revenues and earnings. Postal Realty (PSTL) reported a raft of 7%+ cap rate acquisitions net leased to AMZN’s biggest last-mile distributor, the U.S. Postal Service.  PSTL then raised its dividend for the 12th consecutive quarter.

*UMH Properties (UMH) explained that supply chain issues hurt its 2nd quarter results but added that its July redemption of its Series C Preferred shares would immediately add $0.14/share to annual FFO. UMH has raised its dividend by 5% in each of the last two years and management says more hikes are on the way.

When shares fall on good news, you might do well to consider buying them.

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