Traders Flee Real Estate Stocks as Inflation Warms, Outlook Dims

(Bloomberg) - Investors are dumping real-estate stocks as higher-than-expected inflation data shatter expectations of an imminent shift away from high interest rates.

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On Wednesday, the Real Estate Equity Index fell more than 4%, marking its worst day since mid-2022. The sector was the weakest performer in the S&P 500 both on the day and in April. Utilities were also hit hard on Wednesday as the Consumer Price Report led traders to expect fewer Fed rate cuts this year, a serious headwind for a sector closely tied to borrowing costs.

"Absent a geopolitical shock, utility and real estate stocks could be in a holding pattern after today's declines," said Joe Gilbert, manager of the investment group at Integrity Asset Management LLC.

Losses in real estate stocks were led by commercial real estate companies. In percentage terms, real estate investment trust Extra Space Storage Inc. Regional bank stocks also declined, led by Valley National Bancorp, New York Community Bancorp and Provident Financial Services.

Meanwhile, utility stocks fell about 2% during the day.

"It's a double whammy for utility stocks-one, they're highly leveraged, so borrowing costs will continue to rise," said Keith Lerner, a premier market strategist at Truist Advisory Services. " Second, higher interest rates mean that cash remains an attractive option for utilities.

-Bre Bradham offers assistance.

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