- February 1, 2014: Vol. 26, Number 2

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What if interest rates go orbital? The story behind REITs and the rising cost of money

by Brad Case


Were you puzzled by how stock market investors, and particularly REIT investors, responded last year to news about economic growth and interest rates? So was I. The year started off very strongly for equities, including REITs, with total returns up 18.0 percent for stocks (as represented by the S&P 500 Index) and 19.3 percent for listed U.S. equity REITs through May 21, 2013. Then the market began to act strangely on what turned out to be the third-worst day of the year for listed U.S. equity REITs.

Here’s how Bloomberg summarized the situation on May 22: “The Dow jumped in early trading after [then-chairman of the Federal Reserve Board Ben] Bernanke told lawmakers that job growth is still weak and that it’s too soon to begin withdrawing stimulus. But the gain didn’t last long … after minutes from the recent FOMC [Federal Open Market Committee] meeting told of hawks, citing risks to inflation, calling for a June withdrawal of stimulus and with one

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