After a three-day weekend, markets opened Q2 by falling. Treasury yields rocketed higher in a slow reaction to the strong U.S. revised Q4 GDP figures and high core PCE (inflation excluding food and energy).
The long-term Treasury bonds are the most risky holdings. The TLT ETF fell by 2.19% on Monday, resuming a downtrend that started on March 11 and ended on March 21.
On Friday, the non-farm payrolls report needs to weaken. Another hot jobs report would weaken the chances of the Federal Reserve cutting interest rates. At best, Fed Chair Jerome Powell would hold rates in its June policy meeting. However, this would pressure weak regional banks (KRE), especially New York Community Bank (NYCB).
Investors who bought financial firms bet correctly that the U.S. economy is thriving. J.P. Morgan (JPM) and Citigroup (C) broke out to a fresh new high. Expect them to return to 2021 highs in the coming months. For Citi stock, that price is $80. JPM shares are already $20 above its 2021 peak.
REITs will likely underperform significantly. Income investors who bet on a rate cut will face continued underperformance. Realty Income (O) and W.P. Carey (WPC) are the least attractive. Digital Realty Trust (DLR), which reports results on May 2, is the more attractive REIT today.
Digital Realty Trust operates a carrier-neutral data center globally.
