Flying In The Dark

U.S. equity markets rallied to fresh record-highs last week, driven by investor expectations for rate cuts following a wave of soft employment data, including ADP reporting a third payrolls decline in four months, and a federal government shutdown which markets largely dismissed, anticipating a timely resolution. Concurrently, AI energy infrastructure firm Fermi's $683 million IPO saw shares surge over 35% on the NYSE, potentially signaling an end to the broader IPO drought.

Analysis

U.S. equity markets rallied to fresh record-highs this past week as investors leaned into rate cut expectations following a wave of soft employment data and a Federal Government shutdown. For the fourth time since 1995, the federal government entered a partial "shutdown" after the U.S. Senate failed to reach the 60-vote threshold required for passage of appropriations. Defering to experience from prior shutdowns in 2013 (16 days) and in 2018 (35 days), markets largely shrugged off the latest Congressional impasse, with investors still anticipating a timely resolution. While normally ceding the spotlight to the BLS nonfarm payrolls report, ADP data was the center of attention this week, which showed a payrolls decline for the third time in four months. Is the REIT IPO drought coming to an end? Fermi - a startup AI energy infrastructure firm co-founded in 2023 by former US Energy Secretary Rick Perry - soared more than 35% on the heels of a $683M initial public offering on the NYSE. iREIT®+HOYA Capital members get exclusive access to our real-world portfolio. See all our investments here » Real Estate Weekly Outlook U.S. equity markets rallied to fresh record-highs this past week - while benchmark interest rates moderated - as investors leaned into rate cut expectations following a wave of soft employment data and a Federal Government shutdown, which delayed Alex Pettee is President and Director of Research and ETFs at Hoya Capital. Hoya manages institutional and individual portfolios of publicly traded real estate securities. Alex leads the investing group iREIT®+HOYA Capital. The service features a team of analysts focusing on real income-producing asset classes that offer the opportunity for reliable income, diversification, and inflation hedging. Learn More. 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Hoya Capital Real Estate, its affiliates, and/or its clients and/or its employees may hold positions in securities or funds discussed on this website and in our published commentary. A complete list of holdings and additional important disclosures is available at www.HoyaCapital.com. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. U.S. equity markets have advanced to new record highs, a rally primarily fueled by investor anticipation of Federal Reserve rate cuts. This expectation is underpinned by recent soft employment data, particularly an ADP report indicating a payroll decline for the third time in the last four months. Concurrently, markets are exhibiting resilience to fiscal policy uncertainty, largely disregarding a partial federal government shutdown by referencing historical precedents from 2013 and 2018 which suggest a temporary impasse. This dynamic highlights a market more attuned to monetary policy signals than short-term political gridlock. In a separate but significant development, the initial public offering market is showing signs of revival. Fermi, a new AI energy infrastructure firm, successfully raised $683 million and saw its shares surge over 35% post-debut, suggesting robust investor appetite for new issues in high-growth sectors and potentially signaling an end to the recent IPO drought.

Key Decisions for Investors

• Investors should recognize the current 'bad news is good news' market dynamic, where soft economic data like the ADP report is fueling bullish rate-cut expectations, but remain vigilant for any shift in sentiment where weakening data is perceived as a recessionary threat.
• While the market is currently discounting the federal government shutdown, a resolution period extending beyond the 16-35 day precedent set in 2013 and 2018 could reintroduce volatility, warranting close monitoring of political developments.
• The successful $683M IPO and subsequent 35% share price gain for Fermi indicates strong investor demand for new listings in the AI and energy infrastructure sectors, suggesting that investors should screen for upcoming IPOs in similar high-growth areas.