GDP Didn’t Get Mr. Market Down, But These Factors Are

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Mr. Market clearly didn’t mind Thursday’s drastically disappointing news that the U.S. economy grew a mere 2%. Perhaps he figured that would stave off the Fed from tapering a little while longer?

On Friday though, as I checked with him in the morning, Mr. Market appeared to be feeling much more gloomy. There was red across the board, but especially with the Nasdaq, which has recently been down 134 points, or 0.85%.

Then again, by the time you read this, that might be old news. Frankly, ladies and gentlemen, we’re dealing with a fluctuating creature this final quarter. And we need to treat it accordingly.

So what was the news that drove Mr. Market from one mood to the opposite? That appears to have been Amazon (AMZN) and Apple (AAPL). Both reported earnings on Thursday. And both disappointed investors – one of them intensely. I’ll quote MarketWatch to sum those situations up.

After citing supply chain issues as the reason behind the recorded woes, it writes:

“Apple reported a rare revenue miss – its first since the December quarter of 2018 – with revenue of $83.4 billion coming in $1.7 billion below analysts’ estimates of $85.1 billion for its fiscal fourth quarter… the bulk of the revenue shortfall came from iPhone sales, which came in $2.1 billion below analysts’ expectations. Sales of Macs and iPads, however, exceeded estimates…

“Amazon reported an even sharper-than-expected drop in earnings, with a huge surge in expenses, as it tried to shore up staff and [deal] with unprecedented supply-chain issues. Amazon’s costs to fulfill and ship orders increased to $18.5 billion from $14.71 billion. Amazon reported third-quarter earnings per share of $6.12, a drop of nearly 50% from the year-ago [quarter] and below analysts’ average expectations of $8.90 a share.”

Then again, the GDP numbers could have clued Mr. Market in about such things.

More Tech News and Defining “Stagflation”

Another tech-reliant company, IMAX (IMAX), did just fine last quarter considering everything. The movie-theater company reported $56.6 million in revenue, just under estimates of $57 million. Not too shabby for a company that was supposed to have been completely collapsed by now.

I can’t say similarly positive things about China Evergrande Group making an overdue interest payment to some bondholders. That company isn’t making progress. It’s simply keeping its demise at bay – and just barely.

Oh, yeah, and Facebook (FB) officially changed its name. It’s now known as Meta, much to the mockery of many.

Neither last nor least, let’s explore stagflation, a term we’ve been seeing creep into our news feeds as of late. Fox Business writes, “Those under the age of 40 probably don’t even know what that is – and they’ve certainly never experienced it up front and personal.” But stagflation is essentially slow economic growth combined with inflation.

The reason why the 40-and-under crowd probably doesn’t get it is because it hasn’t happened since the 1970's – back when the misery index was created to measure inflation and unemployment impacts. I’ll stop quoting the article there, since some could see the rest as being solely political.

And while U.S. Treasury Secretary Janet Yellen says the inflation part should only last through mid-2022, she was also one of the people who assured earlier this year that inflation wasn’t a problem at all. Or, at worst, merely a “transitory” one.

Essentially then, don’t hold your breaths about when things will really go back to “normal.”

The World According to REITs

Incidentally, the current market volatility makes for an especially good time to pay attention to your stock wish lists. You never know when your favorite real estate investment trust (REIT) is going to take a temporary fall, maybe even right down to your desired price point.

Who knows. That may have happened already for certain stocks, given the collection of missed earnings estimates the past week has revealed. Not all of them missed, mind you. And of those that did, a miss could be by a mere penny, reducing mountainous headlines to mere molehills.

This is why I’ve cautioned before to always read the full story. And then, if possible, read another source too. You never know what additional information you’ll find to steer you in a more profitable direction.

Speaking of such things, the Daily REITBeat is out until Tuesday, so I don’t have any charts to share. But here’s a short list of what real estate companies reported in the past few days.

  • Weyerhaeuser (WY), Washington REIT (WRE), and Netstreit (NTST).
  • Ladder Capital (LADR), Kite Realty Group (KRG), and LTC Properties (LTC).
  • Gaming and Leisure Properties (GLPI), Camden (CPT), Apartment Income REIT (AIRC), and CTO Realty Growth (CTO).

Here are some of those details:

  • Netstreit was one of the ones that lagged a little in funds from operations (FFO) – but only by a penny at $0.25 per share. Admittedly, it hasn’t been able to surpass those estimates once in the past year. During the quarter, Netstreit purchased 26 properties for around $90.1 million with initial cash cap rates of 6.2%.
  • Gaming and Leisure Properties missed as well at $0.88 in per-share FFO instead of the expected $0.89. In Q2, it was a penny above. It made sure to point out that its four publicly traded tenants that make up almost all of its rent “have significantly bolstered their balance sheets and enhanced their liquidity since the onset of the pandemic.”
  • Ladder Capital, for its part, beat earnings estimates of $0.10 per share by $0.04. Its cash and cash equivalents were down to $758 million for the quarter versus Q3-20’s $1.254 billion. But it’s “pleased to be on plan with strong origination volumes, a robust pipeline, and growing earnings.”
  • Camden reported FFO of $1.36, up a cent from expectations and $0.11 from last year’s showing. The company completed its scheduled lease-up of Camden Downtown in Houston, Texas, and acquired Camden Central in St. Petersburg, Florida, a 368-home apartment community, for $176.3 million.

Brad Thomas is the Editor of the Forbes Real Estate Investor.

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