Dow 20,000: The 'Trump Bump' And How It All Affects Real Estate
Investors soaring high on the "Trump bump" pushed the Dow Jones industrial average across the 20,000 threshold in the fastest thousand-point gain in the index’s history. Here’s how this milestone will impact the commercial property industry going forward.
1. Strong Real Estate Drivers
Investor confidence in President Donald Trump’s anticipated policies — particularly his promises to cut corporate taxes, ease financial regulations and boost infrastructure spending — is driving the post-election rally to the 20,000 milestone. The president’s push to bring manufacturing plants and jobs — both strong real estate drivers — back to the U.S. "will continue to grow and attract capital,” Altus Group director of research Chuck DiRocco said.
2. There’s Still Risk
Investors should be cautious making real estate decisions based off this number alone. Trump and his administration have only been in office six days, which is too early to know whether the goals he’s outlined on the campaign trail and on his Twitter podium will take effect.
“Making an absolute bet [without] knowing what Trump will really be able to accomplish is foolhardy,” Yardi Systems director of research and publications Jack Kern said. “Nobody really knows what Trump and Congress are going to be able to accomplish, and everything else is speculation.”
3. The Long-Term Bets
The milestone isn't just about Trump; the Dow ebbs and flows based on investors' quick (and sometimes emotional) buys, but Kern said those moves usually stay within the 1,000-point range and aren't the main cause for the Dow's growth. The true drivers are investors' long term bets based on their confidence in the economy, he said.
“The economy runs on what is basically sound principles, and, as a consequence of the economy being relatively sound, people are making bets for the long-term," Kern said. "The fact that Trump got elected is neither a cause nor effect."
4. REIT Resiliency
Equity REITs are poised to remain resilient in the midst of expected rising interest rates should Trump’s fiscal stimulus send inflation soaring, as the Federal Reserve expects. REIT managers are deleveraging their portfolios and balancing their sheets in preparation for this year’s rate hikes, and NAREIT economist Calvin Schnure said even with central bankers' projected two or three increases this year, interest rates will remain below historic levels.
“Interest rates are going from extremely low to very low,” Schnure said. “They’re not even approaching moderately low yet.”
5. Flattening REIT Earnings
Though REITs remain a safe bet, Kern foresees a leveling off in REIT earnings this year that will not keep pace with investor demand.
Kern said there is little going on in the industry to warrant a rise in REIT stock pricing; he expects rent growth, depending on the sector, and consumer spending to flatten in 2017. Still, this stagnation remains to be seen, as investors continue to bet big on real estate post-election, boosting REIT shares by 5.8%.