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The industrial real estate market in the US is experiencing a period of remarkable growth. Clarion Partners’ latest research report examines the strong performance of the sector, which is driven by e-commerce companies, strategic inventory stockpiling and the development of specialized subtypes such as industrial outdoor storage (IOS). Discover top insights on why US industrial real estate continues to outperform.
It’s hard to imagine a better macro backdrop for equities. I know what you’re thinking, and yes, I winced too when I wrote this. But the facts are that inflation is moderating, and the Fed just began an easing cycle. The job market, while not as red hot as it had been, is still healthy. And we got a surprise this week out of China that poured gasoline on the fire.
The lede from this Wall Street Journal article sums it up well:
China’s leaders have been drip-feeding support into their ailing economy for three years. This week, they jacked up the dose.
A major injection of stimulus from the central bank—and promises of more government support from the Communist Party’s top decision-making body—mark the beginning of a more muscular approach from Beijing to righting the economy after months of hesitancy, economists say.
Investors had left Chinese equities for dead, with multiples of profits trading at multi-decade lows. Not only has there been investor apathy, but short-sellers have also been betting on lower prices. FXI, one of the largest China ETFs by assets under management, has 61% of the outstanding shares sold short.
Chinese stocks were higher for seven straight days and had their best run in four years. Of course, that carried over to ETFs tracking their markets. FXI saw the second-largest single day of inflows of the year.
The news out of China isn’t just impacting their stock market. Companies that are exposed to China also had a tremendous week. At their peak, Chinese consumers were responsible for ~1/3 of worldwide luxury spending. As such, shares of LVMH (Louis Vuitton) were up 18% this week!
In the United States, we looked at some of the biggest winners and how much exposure they have to China. This news was not priced in, to say the least.
Nobody knows whether or not there’s enough here to slow the economic malaise. China has tried similar moves in the past that have fizzled out. But the impact of a strengthening China on the global market cannot be understated, especially when everything exposed to it was dealing with serious headwinds. Now that the winds are starting to turn, investors have to quickly recalibrate their expectations, which they did in a hurry this week.
It’s reasonable to think, “well gee Michael, the S&P 500 is up 21% this year. Don’t you think some of the things you described above are already priced in? Don’t you think stocks have already baked in the benefits of an easing cycle and a favorable macro backdrop?” Yes, I mostly do. But if that’s your attitude, then you don’t understand the psychology of the markets. If that’s your attitude, then you probably have been fighting the market for a while now. Momentum is the most powerful force in investing and one that too many investors dismiss.
Might this age poorly? Yes. But for now, the wind is at our backs. Enjoy it while it lasts. Like I said earlier in the week, now is the time to make money.
Have a great weekend!
