After being one of the weakest sectors in 2022, there are fewer stocks setting new highs in the Real Estate sector than anywhere else. Just 30% of sector constituents have set a new 6-month high more recently than setting a 6-month low. Less than 20% have broken out of a regime of new lows on a 52-week basis.

All is right in the world.

We’ve traditionally categorized Real Estate as a boring, ‘risk-off’ sector, akin to Health Care, Utilities, and Consumer Staples, but all throughout 2022, Real Estate was indistinguishable from large cap growth. It was one of the more interesting relationships of the year.

As we turned our calendars to 2023, market leadership took a sharp turn in favor of growth stocks, as Information Technology, Consumer Discretionary, and Communication Services surged. Real Estate tagged along for the ride.

Today, things are right back where they belong.

Slowly but surely, fears of a recession are fading from investors’ minds. Inflation is falling faster than just about everyone expected, and the path to a ‘soft-landing’ seems a lot clearer. Somehow, we even managed to shake off a banking panic earlier this year, thanks to aggressive ring-fencing actions and deposit backstops by policy makers.

Among the biggest risks that remains is in commercial real estate, where mass defaults have the potential to cause shockwaves throughout the economy. The epicenter is in office real estate, where remote work policies and evolving urban populations have pushed vacancy rates higher and property values lower. Those occupancy issues are mostly limited to office, but other issues like higher interest rates and tightening lending policies are more widespread.

As a result, Real Estate has been steadily underperforming the rest of the market since the Fed initiated its monetary policy tightening actions last year. The weakness pushed the sector to multi-decade lows.

Do you remember when Real Estate was just another growth sector?

We’ve traditionally categorized Real Estate as a boring, ‘risk-off’ sector, akin to Health Care, Utilities, and Consumer Staples, but all throughout 2022, Real Estate was indistinguishable from large cap growth. It was one of the more interesting relationships of the year.

As we turned our calendars to 2023, market leadership took a sharp turn in favor of growth stocks, as Information Technology, Consumer Discretionary, and Communication Services surged.

Real Estate tagged along for the ride.

There’s not much to like about Real Estate stocks these days.

It’s difficult to get excited about the Real Estate sector these days.